UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
The Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrantx
☒ Filed by a Party other than the Registrant¨ ☐
Check the appropriate box:
| ☐ | Preliminary Proxy Statement |
| ☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| ☒ | Definitive Proxy Statement |
| ☐ | Definitive Additional Materials |
| ☐ | Soliciting Material Pursuant to §240.14a-12 |
FIRST DEFIANCE FINANCIAL CORP.
Premier Financial Corp.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| ☒ | No fee required. |
| Fee paid previously with preliminary materials. |
| ☐ |
 | 601 Clinton Street, Defiance, Ohio 43512 419-785-8700 | |||
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on
April 24, 2018
and
PROXY STATEMENT
TO BE HELD ON
PROXY STATEMENTAPRIL 30, 2024
601 Clinton Street
Defiance, Ohio 43512
2018 ANNUAL MEETING OF SHAREHOLDERS
April 24, 2018
GENERAL
This Proxy Statement is being furnished to shareholders of First Defiance Financial Corp. (“First Defiance,” “FDEF,”NOTICE IS HEREBY GIVEN that the “Company,” “we,” “us,” “our”). Our Board of Directors (the “Board”) is soliciting proxies to be used at our 2018 Annual Meeting of Shareholders (the “Annual(“Annual Meeting”) toof Premier Financial Corp. (“Premier”) will be held on Tuesday, April 24, 201830, 2024, at 1:0030 p.m., Eastern Time, and at any adjournment thereof, for the purposes set forth in the Notice of Annual Meeting of Shareholders.Time. The Annual Meeting will be an entirely virtual meeting. That means you can attend the Annual Meeting online, vote your shares electronically, and submit questions during the Annual Meeting by visiting www.virtualshareholdermeeting.com/fdef2018. Be surePFC2024. The Annual Meeting will be held for the following purposes, all of which are more completely set forth in the accompanying Proxy Statement:
| 1. | To elect five (5) directors; |
| 2. | To consider and approve a non-binding advisory vote on Premier’s executive compensation; |
| 3. | To consider and vote on a proposal to ratify the appointment of Crowe LLP as the independent registered public accounting firm for Premier for the year 2024; and |
| 4. | To transact such other business as may properly come before the Annual Meeting or any adjournment thereof. |
The Board of Directors of Premier has fixed March 1, 2024 as the voting record date for the determination of shareholders entitled to have your 12-Digit Control Numbernotice of and to entervote at the Annual Meeting. We began mailing and electronically distributing, as applicable, this Proxy Statement to the shareholders of First Defiance onMeeting or about March 12, 2018.
Our policy is to send a single Notice of Internet Availability of Proxy Materials to multipleat any adjournment thereof. Only those shareholders of record as of the close of business on that share the same address, unless we receive instructionsdate will be entitled to the contrary. However, each shareholder of record will continue to receive a separate proxy card. This practice, known as “householding,” is designed to reduce our printing and postage costs. If you wish to receive a separate Notice of Internet Availability of Proxy Materials, you may request it by writing to usvote at the above address. If you wish to discontinue householding entirely, you maycontact Broadridge Financial Solutions, Inc.Annual Meeting or at 1-800-542-1061 or in writing at Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717. If you receive multiple copies of the Notice of Internet Availability of Proxy Materials, you may request householding by contacting Broadridge Financial Solutions as noted above. If your shares are held in street name through a bank, broker or other holder of record, you may request householding by contacting that bank, broker or other holder of record.any such adjournment.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE SHAREHOLDER MEETING TO BE HELD ON APRIL 24, 2018April 30, 2024
The Proxy Statement for the 2018 Annual Meeting of Shareholders and the 20172023 Annual Report to Shareholders, which includes the Form 10-K for the year ended December 31, 2017,2023, are both available at by (1) visiting www.proxyvote.com using, (2) calling 1-800-579-1639, or (3) sending an email to sendmaterial@proxyvote.com. If sending an email, please include your 12-Digit16-Digit Control Number andin the subject line. These materials may also be obtained upon written request to First Defianceto:
Premier Financial Corp., Danielle R. Figley,Shannon M. Kuhl, Corporate Secretary 601 Clinton
275 West Federal Street, Youngstown, Ohio 44503
| Your vote on these matters is important, regardless of the number of shares you own. In order to ensure that your shares are represented, I urge you to promptly execute and return the enclosed form of Proxy or submit your Proxy by telephone or Internet. |
BY ORDER OF THE BOARD OF DIRECTORS
Donald P. Hileman
Executive Chair
Shannon M. Kuhl
Corporate Secretary
March 15, 2024 | Defiance, Ohio 43512.
TABLE OF CONTENTS
| 601 Clinton Street, Defiance, Ohio 43512 419-785-8700 | |||
ATTENDING
PROXY STATEMENT FOR THE 2024 ANNUAL MEETING OF SHAREHOLDERS
April 30, 2024
We
This Proxy Statement is being furnished to shareholders of Premier Financial Corp. (“Premier,” “PFC,” the “Company,” “we,” “us,” or “our”). Our Board of Directors (the “Board”) is soliciting proxies to be used at our 2024 Annual Meeting of Shareholders (the “Annual Meeting”) to be held virtually on April 30, 2024, at 1:30 p.m. Eastern Time, and at any adjournment thereof, for the purposes set forth in the Notice of Annual Meeting of Shareholders.
The Proxy Statement and related materials were first made available to shareholders of Premier on or about March 18, 2024 and we expect to begin mailing these proxy materials to the shareholders of Premier on or about March 20, 2024.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON April 30, 2024 The Proxy Statement for the Annual Meeting of Shareholders and the 2023 Annual Report to Shareholders, which includes the Form 10-K for the year ended December 31, 2023, are both available by (1) visiting www.proxyvote.com, (2) calling 1-800-579-1639, or (3) sending an email to sendmaterial@proxyvote.com. If sending an email, please include your 16-Digit Control Number in the subject line. These materials may also be obtained upon written request to Premier Financial Corp., Shannon M. Kuhl, Corporate Secretary, 275 West Federal Street, Youngstown, Ohio 44503. | ||
ANNUAL MEETING INFORMATION
What matters will be hostingvoted on at the Annual Meeting?
The Annual Meeting will be held for the following purposes and you are being asked to vote on:
| 1. | The election of five (5) directors; |
| 2. | A non-binding advisory vote on Premier’s executive compensation to our named executive officers; |
| 3. | The ratification of the appointment of Crowe LLP as the independent registered public accounting firm for Premier for the year 2024; and |
| 4. | Any other business as may properly come before the Annual Meeting or any adjournment thereof. |
Why did you receive a Notice of Internet Availability of Proxy Materials instead of paper copies of the proxy materials?
The U.S. Securities and Exchange Commission (“SEC”) notice and access rule allows us to furnish our proxy materials over the internet to our shareholders instead of mailing paper copies of those materials to each shareholder. As a result, on or around March 20, 2024 we sent to most of our shareholders, by mail or e-mail, a notice containing instructions on how to access our proxy materials over the internet and vote online. This notice is not a proxy card and cannot be used to vote your shares. If you received only a notice this year, you will not receive paper copies of the proxy materials unless you request the materials by following the instructions on the notice or on the website referred to on the notice at no charge. You should request materials before April 16, 2024 in order to reasonably expect to receive them prior to the Annual Meeting.
We provided some of our shareholders, including shareholders who have previously asked to receive paper copies of the proxy materials, with paper copies of the proxy materials instead of a notice that the materials are electronically available over the internet.
How can you attend the Annual Meeting?
The Annual Meeting will be an entirely virtual meeting. That means you can attend the Annual Meeting live viaonline, vote your shares electronically, and submit questions during the Internet. Annual Meeting by visiting www.virtualshareholdermeeting.com/PFC2024. You do not need to attend the Annual Meeting to vote. Even if you plan to attend the Annual Meeting, please submit your vote in advance as instructed in this Proxy Statement.
A summary of the information you need to attend the Annual Meeting online is provided below:
| ● | Any shareholder can attend the Annual Meeting live via the Internet atwww.virtualshareholdermeeting.com/ |
| ● | Webcast starts at 1: |
| ● | Shareholders may vote and submit questions while attending the Annual Meeting on the Internet. |
| ● | Please have your |
| ● | Instructions on how to attend and participate via the Internet, including how to demonstrate proof of stock ownership, are posted atwww.virtualshareholdermeeting.com/ |
Questions regarding how to attend and participate via the Internet may be answered by calling 1-855-449-0991 on the day before the Annual Meeting or the day of the Annual Meeting. |
| Webcast replay of the Annual Meeting will be available until |
PROXIES
What if you have technical issues accessing the Annual Meeting or voting?
If you have technical issues accessing the Annual Meeting or if you are unable to locate your 16-digit control number, contact (855) 449-0991.
Who can vote at the Annual Meeting?
Only our shareholders of record at the close of business on March 1, 2024 (the “Voting Record Date”) are entitled to notice of, and to vote at, the Annual Meeting. On the Voting Record Date, there were 35,803,629 common shares issued and outstanding. We have no other class of equity securities outstanding that are entitled to vote at the Annual Meeting. You are entitled to cast one vote for each share owned and there is no cumulative voting with respect to the election of directors. You do not need to attend the Annual Meeting to vote and can instead follow the instructions “How to vote your shares?” below.
What constitutes a quorum for the Annual Meeting?
The presence, either in person or by proxy, of at least a majority of our outstanding shares entitled to vote, or at least 17,901,815 common shares, is necessary to constitute a quorum at the Annual Meeting. Abstentions and broker non-votes are counted in determining the presence of a quorum.
How to vote your shares?
 | ●Before The Meeting - Go to www.ProxyVote.com or scan the QR Barcode on your Proxy Card. Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on April 29, 2024, unless you are voting shares held in Premier’s 401(k) Employee Savings Plan, in which case the deadline is 11:59 P.M. Eastern Time on April 26, 2024. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ●During The Meeting - Go to www.virtualshareholdermeeting.com/pfc2024 ● You must have the 16-digit Control Number from your Notice of Internet Accessibility to register and vote online either before or during the Annual Meeting. |
 | 1-800-690-6903 - Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on April 29, 2024, or 11:59 P.M. Eastern Time on April 26, 2024 if your shares are held in the 401(k) Employee Savings Plan. Have your proxy card in hand when you call and then follow the instructions. |
 | Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717 before 11:59 P.M. Eastern Time on April 29, 2024, or 11:59 P.M. Eastern Time on April 26, 2024 if your shares are held in the 401(k) Employee Savings Plan. |
If your shares are registered differently and are in more than one account, you will receive more than one proxy card. Please follow the directions for voting on each of the proxy cards you receive to ensure that all of your shares are voted.
How to vote your shares if they are held in the name of a broker?
If your shares are held by your broker, you must vote your shares through your broker. You should receive a form from your broker asking how you want to vote your shares. Follow the instructions on that form to give voting instructions to your broker.
How to vote your shares if you hold them in Premier’s 401(k) Employee Savings Plan?
If you hold PFC shares in the Premier 401(k) Employee Savings Plan, you will receive a full set of materials and your proxy card will serve as your instructions to Fidelity Management Trust Company, the trustee of the 401(k) Employee Savings Plan, to vote your shares. We must receive your completed voting instructions before 11:59 P.M. Eastern Time on April 26, 2024 in order for Fidelity Management Trust Company to vote your shares.
How will your shares be voted if you vote by proxy?
Your proxy, if properly submitted and not revoked prior to its use, will be voted in accordance with the instructions you give.Properly submitted proxies that do not contain voting instructions and that are not “broker non-votes” will be voted (1) FOR the director nominees identified in Proposal 1 herein, (2) FOR the approval of our executive compensation, (3) FOR the approval of the First Defiance Financial Corp. 2018 Equity Incentive Plan, (4) FOR the amendmentvoted:
| 1. | FOR the director nominees identified in Proposal 1 herein; |
| 2. | FOR the approval of our executive compensation; |
| 3. | FOR the ratification of the appointment of Crowe LLP (“Crowe”) as our independent registered public accounting firm for 2024; and |
| 4. | In accordance with the discretion of the persons appointed as proxies upon the transaction of such other business as may properly come before the Annual Meeting. |
How to the Company’s Articles of Incorporation to remove the supermajority voting standard for amendments to our Code of Regulations (the implementation of which is conditioned upon the approval of Proposal 5), (5) FOR the amendment to the Company’s Code of Regulations to remove the supermajority voting standard for amendments to our Code of Regulations (the implementation of which is conditioned upon the approval of Proposal 4), (6) FOR the amendment to the Company’s Articles of Incorporation to remove the supermajority voting standard for amendments to our Articles of Incorporation, (7) FOR the amendment to the Company’s Articles of Incorporation to remove the supermajority voting standard for approval of certain business combinations, (8) FOR the ratification of the appointment of Crowe Horwath LLP as our independent registered public accounting firm for 2018 and (9) in accordance with the best judgment of the persons appointed as proxies upon the transaction of such other business as may properly come before the Annual Meeting.revoke your proxy?
You may revoke your proxy at any time before it is exercised by (i)(1) filing written notice of revocation to be received prior to voting at the Annual Meeting with our Secretary, Danielle R. Figley,Shannon M. Kuhl, at 601 Clinton275 West Federal Street, Defiance,Youngstown, Ohio 43512; (ii)44503; (2) submitting a valid proxy bearing a later date that is received prior to voting at the Annual Meeting; or (iii)(3) attending the Annual Meeting online and giving notice of revocation to the Secretary.Secretary prior to voting your shares at the Annual Meeting. Attending the Annual Meeting will not, by itself, revoke a previously given proxy.
The proxies we are soliciting will only be exercised at the Annual Meeting and any adjournment thereof and will not be used for any other meeting.
VOTING RIGHTS
Only our shareholders of record at the close of business on February 23, 2018 (the “Voting Record Date”) are entitled to notice of, and to vote at, the Annual Meeting. On the Voting Record Date, there were 10,182,308 common shares issued and outstanding. We have no other class of equity securities outstanding that are entitled to vote at the Annual Meeting.
The presence, either in person or by proxy, of at least a majority of our outstanding shares entitled to voteWho is necessary to constitute a quorum at the Annual Meeting. Abstentions and broker non-votes are counted in determining the presence of a quorum.
REQUIRED VOTE
You are entitled to cast one vote for each share owned. Below are specifics regarding the vote requirement for each proposal:
For Proposal 1, the election of directors at the Annual Meeting, director nominees may be elected by a plurality of the votes cast. Our Articles of Incorporation do not permit shareholders to cumulate votes in the election of directors. Abstentions and broker non-votes will not affect the plurality vote required to elect directors.
Proposal 2 to approve our executive compensation and Proposal 8 to ratify the appointment of Crowe Horwath each require that the number of votes cast in favor of the proposal exceed the number of votes cast against it. Because abstentions will not be counted as votes cast at the Annual Meeting, they will not affect either of these proposals. Similarly, broker non-votes will not affect the proposal regarding executive compensation.
Proposal 3 to approve the First Defiance Financial Corp. 2018 Equity Incentive Plan requires that the number of votes cast in favor of this proposal exceed the number of votes cast against it. Abstentions will not be counted as votes cast at the Annual Meeting and, therefore, will not affect this proposal. Broker non-votes will also not affect this proposal.
Proposals 4, 6 and 7 to amend the Company’s Articles of Incorporation to remove the supermajority voting standards for, respectively, amendments to our Code of Regulations, amendments to our Articles of Incorporation and approval of certain business combinations must be approved by at least 75% of the votes entitled to be cast at the Annual Meeting. Abstentions and broker non-votes will be counted as votes “AGAINST” each of these proposals. In addition, Proposal 4 may only be approved if the corresponding amendment in Proposal 5 also receives shareholder approval.
Proposal 5 to amend the Company’s Code of Regulations to remove the supermajority voting standard for amendments to our Code of Regulations must be approved by at least two-thirds of the votes entitled to be cast at the Annual Meeting. Abstentions and broker non-votes will be counted as votes “AGAINST” this proposal. In addition, Proposal 5 may only be approved if the corresponding amendment in Proposal 4 also receives shareholder approval.
Because the proposals to approve our executive compensation and ratify the appointment of Crowe Horwath as our independent registered public accounting firm are advisory, they will not be binding upon the Board. However, the Compensation Committee will take into account the outcome of the executive compensation vote when considering future executive compensation arrangements. Further, if the appointment of Crowe Horwath is not ratified by the shareholders, the Audit Committee may re-consider its selection of Crowe Horwath as our independent registered public accounting firm for the fiscal year ending December 31, 2018.
Proposals 1-7 are not “discretionary” items. Ifsoliciting your shares are held in “street name,”you must provide instructions to your brokerage firm in order to cast a vote on these proposals. The ratification of the appointment of Crowe Horwath is considered a “discretionary” item, so your brokerage firm may vote in its discretion on your behalf if you do not furnish voting instructions.
proxy?
PROPOSAL 1
Election of Directors
Composition of the Board
Currently, the Board consists of 13 directors and is divided into three classes, with two of the classes having four members and one class having five members. The directors are elected by class to serve a three-year term. The terms of the three classes expire at successive annual meetings so that the shareholders elect one class of directors at each annual meeting.
Effective as of January 4, 2018, Ms. Bettinger, Mr. Herman and Mr. Robison were appointed to the First Defiance Board of Directors by a unanimous vote of the Board to fill the vacancies created by the retirement of Stephen L. Boomer on December 31, 2017 and an increase in the size of the Board to 13 directors. The Board appointed Ms. Bettinger and Mr. Herman to fill the vacancies in the class of directors with a term expiring at the 2019 annual meeting and Mr. Robison to fill a vacancy in the class of directors with a term expiring at the 2020 annual meeting.
We will elect four directors at the Annual Meeting. The director nominees standing for election at the Annual Meeting are Mr. Beach, Mr. Burgei, Mr. Hileman and Mr. Strausbaugh. Those nominees elected to the Board at the Annual Meeting will serve until our annual meeting in 2021, and until each such person’s successor is duly elected and qualified. If any of the four nominees should become unable or unwilling to stand for election at the Annual Meeting, the persons named on the proxy card as proxies may vote for other person(s) selected by the Board. We have no reason to believe that any of the director nominees for election named in this Proposal 1 will be unable or unwilling to serve. Each director nominee has consented to act as a director if elected.
The Board has determined that each of Terri A. Bettinger, John L. Bookmyer, Douglas A. Burgei, Thomas K. Herman, Jean A. Hubbard, Barbara A. Mitzel, Charles D. Niehaus, Thomas A. Reineke, Mark A. Robison and Samuel S. Strausbaugh is “independent” under the rules of The NASDAQ Stock Market LLC (“NASDAQ”). In assessing the independence of directors and the director nominees, the Board considered the business relationships between First Defiance and its directors or their affiliated businesses, other than ordinary banking relationships. Where business relationships other than ordinary banking relationships existed, including those disclosed under “Related Person Transactions” below, the Board determined that none of the relationships between First Defiance and their affiliated businesses impaired the directors’ or director nominees’ independence because the amounts involved were immaterial to the directors or to those businesses when compared to their annual income or gross revenues. Although William J. Small and Robert E. Beach are each “independent” under the rules of NASDAQ, the Board has determined Mr. Beach is not “independent” due to his prior position as President and CEO of Commercial Bancshares, Inc., which was acquired by the Company on February 24, 2017, and Mr. Small is not “independent” due to his prior position with the Company and First Federal.
Nominees for Election at this Annual Meeting:
Board Leadership Structure
Since his appointment as President and CEO in 1999, William J. Small has served as Chairman of the Board of Directors. Upon Mr. Small’s retirement in 2013, he retained the position of Chairman and Donald P. Hileman became our President and CEO. This marked the first time in over a decade that these positions had been split. The Board decided it was time to divide these roles because, by doing so, they could continue to benefit from Mr. Small’s experience in a leadership role, and his in-depth familiarity with our hiring and operations.
The Board is aware that one of its responsibilities is to oversee our management and make performance, risk and compensation-related decisions regarding management. In order to appropriately balance the Board’s focus on strategic development with its management oversight responsibilities, the Board created the position of Lead Independent Director. On January 4, 2018, John L. Bookmyer was appointed by the Board as Lead Independent Director following Stephen L. Boomer’s retirement from this position on December 31, 2017. As Lead Independent Director, Mr. Bookmyer is a permanent member of the Board’s Executive Committee and presides over executive sessions of the Board, which are attended only by non-management directors. In addition, Mr. Bookmyer is an active liaison between management and our non-management directors and with individual non-management directors concerning recent developments affecting us. Through the role of an active, engaged Lead Independent Director, the Board believes that its leadership structure is appropriately balanced between promoting our strategic development with the Board’s management oversight function. The Board also believes that its leadership structure has created an environment of open, efficient communication between the Board and management, enabling the Board to maintain an active, informed role in risk management by being able to monitor and oversee those matters that may present significant risks to us. The Board intends to maintain the Lead Independent Director position until such time as Mr. Small would qualify as an independent director or an Independent Chairman is appointed.
Board Committees
The Board has five standing committees: Audit, Corporate Governance, Compensation, Executive and Risk. The current members of our standing committees are named below:
# - Chairperson
## Vice Chairperson
** - Lead Independent Director
*** -Denotes Rotating Service
TheAudit Committee is responsible for: (i) the appointment of our independent registered public accounting firm; (ii) review of the external audit plan and the results of the auditing engagement; (iii) review of the internal audit plan and results of the internal audits; (iv) review of reports issued by our Compliance Officer; (v) review of the effectiveness of our system of internal control, including review ofthe process used by management to evaluate the effectiveness of the system of internal control; and (vi) oversight of our accounting and financial reporting practices. The Audit Committee has adopted a written charter setting forth these responsibilities, a copy of which is posted on our website athttp://www.fdef.com under the link “Governance Documents.” The Board has determined that John L. Bookmyer and Samuel S. Strausbaugh each have the attributes listed in the definition of “audit committee financial expert” set forth in Item 407(d)(5)(ii) of Regulation S-K and in the NASDAQ listing requirements. All of the Audit Committee members are considered “independent” for purposes of NASDAQ listing requirements and meet the NASDAQ standards for financial sophistication. The Audit Committee met five times in 2017.
TheGovernance and Nominating Committeewas established by the Board to ensure that the Board is appropriately constituted and conducts its affairs in a manner that will best serve the Company’s interests and those of our shareholders. Specific duties of the Committee include administering our conflict of interest policy/code of ethics, monitoring the Board’s continuing education and self-assessment process, nominating directors to the Board, and conducting an annual assessment of the Board as a whole, including an assessment of Board composition and committee assignments. The Governance and Nominating Committee develops, with management, the materials discussed and presented at the board strategic planning meeting. The Governance and Nominating Committee maintains a robust process for succession planning for the CEO as well as for other executive-level positions. The Governance and Nominating Committee maintains both an emergency plan and a long-range succession plan. The plans are reviewed at least annually by the Governance Committee. The Governance and Nominating Committee has adopted a written charter setting forth its responsibilities, a copy of which is posted on our website athttp://www.fdef.com under the link “Governance Documents.” The Governance and Nominating Committee met four times in 2017.
The Governance and Nominating Committee believes that candidates for director should have certain minimum qualifications, including being able to read and understand basic financial statements, having business experience, and exhibiting high moral character. Although the Committee does not have a formal diversity policy in place, the Committee seeks to promote a diverse set of viewpoints and business experience in the Board’s membership. The Committee retains the right to modify these minimum qualifications from time to time as circumstances dictate. The Committee has a general process for choosing nominees, which process considers both incumbent directors and new candidates. In evaluating an incumbent director whose term of office is set to expire, the Committee reviews such director’s overall service to us during his or her term, including attendance at meetings, participation and quality of performance. If the Committee chooses to evaluate new director candidates, the Committee uses its network of contacts to compile a list of potential candidates. Then, the Committee determines whether such candidates are independent, which determination is based upon applicable securities laws. Finally, the Committee meets to discuss and consider all candidates’ qualifications and then chooses those candidates who will be proposed as director nominees to the full Board. The Governance and Nominating Committee considers the following criteria in proposing director nominees to the full Board: (1) independence; (2) high personal and professional ethics and integrity; (3) ability to devote sufficient time to fulfilling duties as a director; (4) impact on diversity of the Board, including skills and other factors relevant to our business; and (5) overall experience in business, education, and other factors relevant to our business.
Our shareholders may also make nominations for candidates for director to the Governance and Nominating Committee, provided that notice of such nomination is given in writing to our Secretary not less than 60 days prior to the anniversary date of the immediately preceding annual meeting of shareholders. The notice must set forth the name, age, business address and residence address (if available) of the nominee and the number of shares that are beneficially owned by the nominee. Also, the shareholder making the nomination must promptly provide any other information reasonably requested by the Governance and Nominating Committee. This Committee does not alter the manner in which it evaluates candidates, including the minimum criteria set forth above, when evaluating a candidate who was recommended by a shareholder. No director nominations were received from shareholders for the election of directors at the Annual Meeting.
TheCompensation Committee is responsible for overseeing our compensation programs, including base salaries, long-term incentive compensation, equity-based compensation, perquisites and benefit plans. The Committee also administers the process for evaluating our Chief Executive Officer and recommends to the Board the compensation for directors (including committee member and committee chair’s fees, equity-based awards and other similar items, as appropriate). The Committee uses the services of an independent executive compensation consulting firm, Pay Governance, to fulfill its responsibilities for evaluating and establishing the compensation program for the Company’s executive officers. In 2017, the Committee engaged Pay Governance to review and analyze our executive compensation program, including salaries for our directors, CEO, CFO, Chief Risk Officer and Community Banking President/Chief Lending Officer of First Federal, to provide a study of comparative compensation data derived from the Company’s peer group and to advise the Committee on developing governance trends among such peer group. Pay Governance reports directly to the Compensation Committee and serves at the discretion of the Committee, although the CEO has consulted directly with Pay Governance regarding the compensation of executives among our peer group in recommending 2017 salaries for our remaining executive officers. The Committee has the sole authority to appoint, compensate and oversee Pay Governance, including responsibility for evaluating Pay Governance’s independence and establishing its fees and retention terms. In retaining Pay Governance for fiscal year 2017, the Committee assessed Pay Governance’s independence pursuant to the applicable rules of the Securities and Exchange Commission and determined that Pay Governance’s services for the Compensation Committee did not raise any conflict of interest. In addition, Pay Governance did not provide any additional services to the Company other than the services to the Compensation Committee in fiscal year 2017. Further description of the Compensation Committee’s responsibilities and the role of Pay Governance in determining executive compensation is set forth under “Compensation Discussion and Analysis” below. The Compensation Committee has adopted a written charter setting forth its responsibilities, a copy of which is posted athttp://www.fdef.com under the link “Governance Documents.” All of the Compensation Committee members are considered “independent” for purposes of NASDAQ listing requirements. The Compensation Committee met three times in 2017.
TheExecutive Committee generally has the power and authority to act on behalf of the Board between scheduled meetings unless specific Board action is required or unless otherwise restricted by our Articles of Incorporation or Code of Regulations or by action of the Board. As Chairman of the Board, Mr. Small serves as Chairman of the Executive Committee. Mr. Small, Mr. Bookmyer and Mr. Hileman serve as permanent members. The remaining directors serve on the Executive Committee on a rotating basis during the year. The Executive Committee did not meet during 2017.
TheRisk Committeewas established by the Board of Directors to assist the Board in fulfilling its oversight responsibilities with regard to the risk appetite of the Company and the risk management and compliance framework and the governance structure that support the Company. The Risk Committee has adopted a written charter setting forth these responsibilities, a copy of which is posted on the Company’s website athttp://www.fdef.com under the link “Governance Documents.” The Risk Committee met four times during 2017.
Compensation Committee Interlocks and Insider Participation
Mr. Bookmyer, Ms. Hubbard, Mr. Boomer and Mr. Strausbaugh served on the Compensation Committee during 2017. There were no Compensation Committee interlocks or insider (employee) participation during 2017.
Board and Board Committee Meetings
Our Board holds regular meetings each quarter. First Federal’s Board of Directors meets twice each quarter. Special meetings of the Boards are held from time to time as needed. There were five meetings of the Board of Directors of First Defiance and eight meetings of the Board of Directors of First Federal held during 2017.All of our directors attended at least 75% of the total number of meetings of the Board of Directors of First Defiance or First Federal, as applicable, and meetings held by all committees of the Board on which the director served during 2017.
Neither the Board nor the Corporate Governance Committee has implemented a formal policy regarding director attendance at our annual shareholder meetings. In 2017, all eleven of our then incumbent directors attended the annual meeting.
Non-management directors met two times in executive session in 2017.
Director Compensation
The table below provides information concerning our director compensation for the fiscal year ended December 31, 2017. Employee directors are not paid for Board service. Each non-employee director received an annual retainer of $31,000 in 2017, except that the non-employee Chairman received a retainer of $56,000 and the Lead Independent Director received a retainer of $34,000. The Company pays directors $10,000 of the annual retainer in First Defiance stock and the remainder in cash. The Company uses a 20 day average stock price when calculating the number of shares to be issued. Committee chairs received an additional annual retainer as follows: (1) Audit Committee – $5,000; (2) Compensation Committee – $5,000; (3) Risk Committee – $5,000; and (4) Corporate Governance Committee – $3,500. In addition, each non-employee director received $750 for each board meeting attended for either First Defiance or First Federal. Mr. Small and Mr. Burgei are also directors of First Insurance Group of the Midwest, Inc., and they received $500 for each First Insurance board meeting attended. Non-employee directors also received compensation for each committee meeting attended as follows: (1) Audit Committee – $500; (2) Compensation Committee – $500; (3) Executive or First Federal Executive Loan Committee meetings – $200; and (4) other First Defiance and First Federal Board committees – $500.
Our directors may defer their retainer and/or meeting fees payable to them under the First Defiance Deferred Compensation Plan. The returns on the amounts deferred are dependent on the investment elections made by the director. The directors’ choices include a number of mutual funds and an account of our common shares. Returns under the plan are calculated to mirror these elections. Because these earnings are denominated in our shares or mutual fund equivalents, such earnings are not considered to be preferential or above market and are not reported in the table below. Also, no director received perquisites or personal benefits with an aggregate value exceeding $10,000.
The Board has set ownership guidelines for the Board and executive management. The guideline for each Board member is ownership equal to a value of 5 times the annual retainer of $31,000 in shares of First Defiance. The Company allows for the payment of directors fees in either cash or stock at the election of the individual director.
2017 Director Compensation
| Director | Fees Earned or Paid in Cash ($)(a) | Stock Awards ($)(b) | Total ($) | |||||||||
| Bookmyer, John L. | $ | 41,750 | $ | 10,239 | $ | 51,989 | ||||||
| Boomer, Stephen L. | $ | 50,450 | $ | 10,239 | $ | 60,689 | ||||||
| Burgei, Douglas A. | $ | 35,400 | $ | 10,239 | $ | 45,639 | ||||||
| Hubbard, Jean A. | $ | 43,650 | $ | 10,239 | $ | 53,889 | ||||||
| Mitzel, Barbara A. | $ | 37,250 | $ | 10,239 | $ | 47,489 | ||||||
| Strausbaugh, Samuel S. | $ | 43,750 | $ | 10,239 | $ | 53,989 | ||||||
| Niehaus, Charles D. | $ | 38,250 | $ | 10,239 | $ | 48,489 | ||||||
| Small, William J. | $ | 63,950 | $ | 10,239 | $ | 74,189 | ||||||
| Reineke, Thomas A. | $ | 36,250 | $ | 10,239 | $ | 46,489 | ||||||
| Beach, Robert E. | $ | 32,400 | $ | 8,532 | $ | 40,932 | ||||||
Communication with Directors
The Board has adopted a process by which shareholders may communicate with the directors. Any shareholder wishing to do so may write to the Board at our principal business address – 601 Clinton St., Defiance, Ohio 43512. Any shareholder communication so addressed will be delivered unopened to the director or a member of the group of directors to whom it is addressed, or to the Chairman if addressed to the Board.
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines as a framework to assist the Board in exercising its responsibilities. These Guidelines address expectations of the Board in performing its duties and reflect its ongoing efforts to enhance its effectiveness and corporate governance. These Guidelines will be periodically reviewed and modified as deemed appropriate by the Board. The Guidelines can be found on the Company’s website athttp://www.fdef.comunder the link “Governance Documents.”
Board’s Role in Strategic Planning
Our Board has the legal responsibility for overseeing our affairs and, thus, an obligation to keep informed about our business and strategies. This involvement enables the Board to provide guidance to management in formulating and developing plans and to exercise independently its decision-making authority on matters of importance to us. Acting as a full Board and through its standing committees, the Board is fully involved in our strategic planning process.
Each year, typically in September, senior management and the Board hold an extended meeting to focus on corporate strategy. This session involves presentations from management and input from the directors regarding the assumptions, priorities and strategies that will form the basis for management’s operating plan and strategy for the coming year. At subsequent meetings, the Board continues to review our progress against the strategic plan and to exercise oversight and decision-making authority regarding strategic areas of importance and revise the strategic plan as necessary. The role the Board plays is inextricably linked to the development and review of our strategic plan. Through these procedures, the Board, consistent with good corporate governance practices, encourages our long-term success by exercising sound and independent business judgment on the strategic issues that are important to our business.
Board’s Role in Risk Oversight
The Board’s function of overseeing risk is handled primarily by the Risk Committee. The Chief Risk Officer works with management as well as internal and external auditors to determine and evaluate significant risks that we may be taking and communicates those findings directly to the Risk Committee. The Risk Committee is focused on identifying, quantifying, and minimizing our risks. The Risk Committee believes that by involving both management and auditors in this important process, it is best able to perform its function. First Federal also has a standing Officer Risk Management Committee, Compliance Committee, Information Technology Steering Committee and Asset Review Committee that meet regularly to provide structure and input into our Risk Management Process. The minutes and findings of these committees are presented to the Risk Committee.
EXECUTIVE OFFICERS
The following table sets forth the name of each current executive officer, other than Mr. Hileman, whose information is set forth above, and the principal position and offices he or she holds with First Defiance or First Federal.
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COMPENSATION DISCUSSION AND ANALYSIS
The following Compensation Discussion and Analysis describes the material elements of compensation of our executive officers identified in the Summary Compensation Table (“Named Executive Officers”). Our goal is to become a high performing community bank, meeting or exceeding the 75th percentile of our peers in key financial measures.
In 2017, we reported our fifth consecutive year of record diluted earnings per common share and completed two strategic acquisitions. The acquisition of Commercial Bancshares, Inc. added approximately $350 million in assets, expanded our footprint, and provided enhanced efficiency opportunities. The acquisition of Corporate One Benefits Agency, Inc. enhanced our employee benefit offerings and expanded our insurance presence into adjacent markets. Diluted earnings per share for 2017 were $3.22, up only 1% from 2016 primarily due to the impact of acquisition and merger related expenses, which reduced earnings by $0.28 per diluted share. Even with the acquisition and merger related costs, we posted a strong return on average assets at 1.13% and improved efficiency ratio to 61.81%. Growth in loans and deposits was 21% and 23%, respectively, including the acquisitions, and 6.4% and 7.5%, respectively, excluding the acquisitions.
For the three year period ending December 31, 2017, our three year cumulative growth in earnings per share was 32%, even with the impact of acquisition and merger related costs in 2017. This performance was mainly due to a strong three year average return on assets of 1.17%. Over this same period, First Defiance shares posted a total return to shareholders of 62.5%.
Compensation Philosophy and Objectives
The Board believes the most effective executive compensation program is one that rewards the achievement of specific annual, long-term and strategic goals that are established in conjunction with strategic planning initiatives and the long-term objective of maximizing shareholder value. Consistent with that philosophy, our executive compensation packages include both cash and stock-based compensation that reward performance as measured against predetermined goals. The Compensation Committee (the “Committee”) evaluates our executive compensation to ensure that it is sufficiently competitive to enable us to attract and retain qualified employees in key positions. Total compensation commensurate with the median compensation paid to similarly situated executives of peer companies is generally what the Committee considers competitive.
The Board encourages ownership of FDEF shares by its executive management, which is why a significant part of each Named Executive Officer’s compensation package is paid in equity. As a result, the Committee has established share ownership guidelines for executives as follows:
Advisory Vote on Executive Compensation
At the 2013 annual meeting, our shareholders approved holding annual votes on our executive compensation. In addition, the Board receives investor feedback through the Company’s participation at investor conferences periodically throughout the year. In 2017, executive management participated in the KBW Community Bank Investor Conference in New York, New York; the Raymond James U.S. Bank Conference in Chicago, Illinois; and the Hovde Group Fast Forward Bank Conference in Scottsdale, Arizona, with no concerns on executive compensation raised by investors. At our 2017 annual meeting, our shareholders approved our executive compensation with 96.1% of the votes cast, indicating that shareholders are strongly supportive of our executive compensation program. The resolution to approve First Defiance’s executive compensation is advisory, so it is not binding upon the Board of Directors. However, the Committee took the shareholder vote into account when reviewing executive compensation for 2017 and will continue to monitor shareholder approval levels going forward.
CEO Pay Ratio
Beginning with the proxy statement for the Annual Meeting and for each annual meeting thereafter, we are required to disclose the median of the total compensation of the Company’s employees, excluding the Company’s CEO, for the last completed fiscal year, the annual total compensation of the Company’s CEO for the last completed fiscal year and the ratio between the foregoing compensation amounts. We identified the median employee by examining the 2017 total federal taxable compensation through December 1, 2017 for all individuals, excluding our CEO, who were employed by us on November 27, 2017 (whether employed on a full-time, part-time, or seasonal basis). For such employees, we did not make any assumptions, adjustments, or estimates with respect to total federal taxable compensation, and we did not annualize the compensation for any full-time employees that were not employed by us for all of 2017. After identifying the median employee, we calculated annual total compensation for such employee using the same methodology we use for our Named Executive Officers as set forth in the Summary Compensation Table on page 30 of this Proxy Statement.
For fiscal year 2017, the annual total compensation of our CEO was $981,605 and the annual total compensation for the median employee was $39,897, resulting in a ratio of 24.6:1.0.
Roles of the Committee and Chief Executive Officer in Compensation Decisions
The Committee makes all compensation decisions for the Company’s executive officers. The CEO makes compensation recommendations to the Committee for all Named Executive Officers except himself.
2017 Executive Compensation Components
For the fiscal year ended December 31, 2017, the principal components of compensation for our Named Executive Officers were:
In the latter part of 2016, the Committee engaged Pay Governance to perform an analysis of compensation for our directors, CEO, CFO, Chief Risk Officer and Community Banking President/Chief Lending Officer of First Federal. In conducting this analysis, Pay Governance independently developed competitive data for base salaries, short-term incentives, total cash compensation (sum of salary and bonus), long-term incentives, equity compensation and total direct compensation (sum of cash compensation and long-term incentives) from: (1) proxies and SEC filings of select peer banks ranging in asset size from $1.3 billion to $5.4 billion, with a median asset size of $2.9 billion compared to $2.8 billion proforma for First Defiance, with its pending acquisition of Commercial Bancshares, Inc., (2) surveys of other banks and (3) the consulting experience of Pay Governance.
For 2017, the Committee determined to use the peer group recommended by Pay Governance to evaluate the appropriateness of the compensation package for each of First Defiance and First Federal’s officers, including the Named Executive Officers, and to evaluate the relative performance measures for the long-term incentive compensation payable under the First Defiance Financial Corp. and Affiliates Incentive Compensation Plan (the “Incentive Compensation Plan”). That peer group is:
Compared to the 2016 peer group, Canandaiga National Corp., HopFed Bancorp, Inc., LCNB Corp., and S&T Bancorp Inc. were removed and City Holding Co., Financial Institutions Inc., MBT Financial Corp, Mercantile Bank Corporation, MVB Financial Corp., Republic Bancorp, Inc., 1st Source Corporation, First Financial Corporation, and United Community Financial Corp. were added as a result of the criteria for peers outlined above.
Base Salary
We provide our Named Executive Officers and other employees with a base salary to compensate them for services rendered during the fiscal year. The base salary for each of the Named Executive Officers is generally determined at the beginning of the year.
Based upon Pay Governance’s 2014 analysis of peer group compensation practices and resulting recommendations, the Committee determined in 2015 to gradually increase Mr. Hileman’s compensation over a three-year transition period to the market median salary level among First Defiance’s peer companies. In 2017, the Committee considered Pay Governance’s recommendation, the CEO’s performance review, the 2016 performance of the Company and the Pay Governance salary comparison data for CEOs in our peer group in deciding to increase Mr. Hileman’s salary from $430,000 to $450,000 for 2017.
Base salaries for Named Executive Officers other than the CEO are determined based upon recommendations made by the CEO. In making a recommendation for 2017 salaries, the CEO compared the base salary levels of the other Named Executive Officers with data from the ABA Compensation & Benefits Survey, the OBL Bank Compensation and Benefits Survey, the Crowe Horwath LLP Compensation Survey and internal pay grades, and consulted with Pay Governance regarding the median levels of the peer group above. As a result of Mr. Hileman’s review of this benchmarking compensation data, Mr. Hileman recommended salary increases for 2017 ranging from 2.6% to 4% for Mr. Thompson, Mr. Reisner, Mr. Allen and Mr. Rose. After evaluating a number of factors, including performance evaluations, the Committee decided to approve all of Mr. Hileman’s recommendations.
Performance-Based Incentive Compensation
The Board believes that a significant amount of executive officer compensation should be performance-based. Under the Incentive Compensation Plan, we have created opportunities for employees to earn short-term and long-term incentive compensation in the form of both cash and equity awards based on the level of achievement of performance targets that are established each year by the Committee. The Board believes this incentive compensation aligns with shareholder interests, enables attraction and retention of executive talent, balances risk with rewards and supports the long-term performance goals of the Company. In general, the Committee establishes threshold, target and maximum bonus payout goals. If the threshold performance level is not achieved, the payout percentage for that component of the bonus calculation is zero. If the performance level for a component is between the threshold and target or between the target and the maximum performance goal, the payout percentage is prorated.
In 2016, the Committee, with consultation from Pay Governance, established incentive targets and granted awards for 2017 under the Incentive Compensation Plan to permit employees who are selected as participants to earn a specified “target” percentage of their base salary, which is split between a short-term award paid in cash and based on the Company’s 2017 performance, and a long-term award paid in equity and based on the Company’s performance from 2017 to 2019. Both the short-term award and the long-term award can be earned at between 0% and 150% of the specified “target” depending on the level of attainment of the performance objectives. Specific payout amounts for these incentive-based awards are discussed below.
2017 Short-Term Executive Incentive Compensation.As authorized under the Incentive Compensation Plan, the Company may grant short-term incentive compensation to key officers, including the Named Executive Officers. At the end of the performance period, these short-term incentive compensation awards are payable in cash based upon the level of achievement with respect to the specified annual performance goals. The goals for each Named Executive Officer are established in conjunction with the Board’s and management’s expectations for the year and weighted for each officer based on the officer’s role within the Company.
For 2017, the performance goals for the short-term incentive compensation award for the Named Executive Officers anticipated the Company’s completion of the acquisition of Commercial Bancshares, Inc. in February 2017 and included three common goals: Earnings Per Share, Efficiency Ratio, and Deposit Growth. The Board believes that Earnings Per Share measures the Company’s profitability consistent with shareholder interests, Efficiency accentuates controlling expenses, and Deposit Growth reflects the organic expansion of our business.
The related payout percentages of the bonus potential for the common goals are described below:
| Award Formula Component | Threshold (50% Payout) | Target (100% Payout) | Maximum (150% Payout) | Actual attained level | Payout percentage | |||||||||||||||
| Earnings Per Share (1) | $ | 3.16 | $ | 3.23 | $ | 3.46 | $ | 3.20 | 90.00 | % | ||||||||||
| Efficiency Ratio (2) | 63.69 | % | 61.50 | % | 59.31 | % | 62.00 | % | 88.41 | % | ||||||||||
| Deposit Growth (3) | 2.46 | % | 4.73 | % | 7.00 | % | 7.45 | % | 150.00 | % | ||||||||||
In addition, for 2017, the performance goals for Mr. Reisner and Mr. Allen included an individual performance goal component based on their respective roles and responsibilities in the Company. The criteria for Mr. Reisner’s performance were focused on the performance of the Risk Management Group and for Mr. Allen the criteria focused on the performance of the Community Banking Group. The performance goals for Mr. Rose were aligned consistent with the 2017 objectives for his role as Director of Strategy Management.
The relative weighting of the goals for each Named Executive Officer is described below:
| Award Formula Component | Donald P. Hileman | Kevin T. Thompson | John R. Reisner | Gregory A. Allen | Dennis E. Rose | |||||||||||||||
| Individual Goal Component Weighting | ||||||||||||||||||||
| Earnings Per Share | 33.33 | % | 33.33 | % | 16.66 | % | 20.00 | % | 25.00 | % | ||||||||||
| Efficiency Ratio | 33.33 | % | 33.33 | % | 16.66 | % | 20.00 | % | 25.00 | % | ||||||||||
| Deposit Growth | 33.33 | % | 33.33 | % | 16.66 | % | 30.00 | % | 50.00 | % | ||||||||||
| Individual Assigned Goals | 0.00 | % | 0.00 | % | 50.00 | % | 30.00 | % | 0.00 | % | ||||||||||
| Total | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||
In 2017, the Named Executive Officers exceeded the Threshold level of performance in all award components. The Committee reviewed the components and earned payouts and certified the cash payouts at the earned level for the short-term incentive compensation. The short-term incentive payouts for the Named Executive Officers ranged between 28% and 50% of base salary.
The 2017 target short-term incentive compensation component and actual bonus payout as approved by the Committee for the Named Executive Officers are set forth below:
| Award Potential at Target | ||||||||||||
| Executive Officer | (% of Base Salary) | Target | Actual Payout | |||||||||
| Donald P. Hileman | 45 | % | $ | 202,500 | $ | 221,657 | ||||||
| Kevin T. Thompson | 35 | % | $ | 81,080 | $ | 88,751 | ||||||
| Gregory R. Allen | 35 | % | $ | 74,443 | $ | 60,061 | ||||||
| John R. Reisner | 35 | % | $ | 68,196 | $ | 79,169 | ||||||
| Dennis E. Rose | 25 | % | $ | 41,997 | $ | 50,228 | ||||||
2017 Long-Term Executive Incentive Compensation.In addition to the short-term incentive compensation awards, the Committee may also grant long-term incentive compensation awards under the Incentive Compensation Plan. These long-term awards are intended to reward certain executives, including the Named Executive Officers, for increasing the value of the Company through sustained future growth and profitability. Awards are made in restricted stock units (“RSUs”) issued under our 2010 Equity Incentive Plan at the beginning of a three-year performance period. At the end of such three-year performance period, First Defiance’s performance is evaluated and each whole or fractional RSU entitles the officer to receive one FDEF share on the date the RSU is settled. In the first quarter of 2017, the Committee established long-term incentive compensation awards for certain executives, including the Named Executive Officers, with a three-year performance period. With respect to these awards, we entered into a 2017 Long-Term Restricted Stock Unit Award Agreement with each of the Named Executive Officers, pursuant to which, each officer was awarded an amount of RSUs equal to 100% of the Maximum payout under the long-term incentive compensation component of the Incentive Compensation Plan. The number of RSUs granted under the Plan was calculated by taking the maximum incentive payout dollar value divided by the 20-day average share closing price as of December 31, 2016. Under the 2017 Long-Term Restricted Stock Unit Award Agreements, if the officer’s employment terminates for any reason (except for certain circumstances as described in the Award Agreement that has special vesting schedules for death, disability, retirement and change in control) prior to the end of the applicable performance period, the officer forfeits all of the RSUs subject to the target award for that and any subsequent performance period.
The 2017-2019 long-term incentive compensation award target for each of the Named Executive Officers is set forth below:
| Bonus Potential Dollar Amount(1) | ||||||||||||
| Executive Officer | (% of Base Salary) | Target | Maximum | |||||||||
| Donald P. Hileman | 45 | % | $ | 204,648 | $ | 310,072 | ||||||
| Kevin T. Thompson | 35 | % | $ | 81,946 | $ | 124,161 | ||||||
| Gregory R. Allen | 35 | % | $ | 75,248 | $ | 114,013 | ||||||
| John R. Reisner | 35 | % | $ | 68,919 | $ | 104,423 | ||||||
| Dennis E. Rose | 25 | % | $ | 42,463 | $ | 64,338 | ||||||
The long-term incentive compensation awards granted in 2017 have the same payout percentages and components as the long-term incentive compensation awards granted in 2016, and utilize the same peer group established by the Committee as set forth above under the heading “2017 Executive Compensation Components” above. The applicable performance criteria and weighting for the 2017-2019 performance period are as described below:
Achievement of the performance levels are determined by the Committee, in its sole discretion, using financial information filed with the Securities and Exchange Commission and other sources as available. The Committee reserves the right, in its sole discretion, to make such periodic adjustments as it determines appropriate to the peer group.
For the 2015 long-term incentive compensation awards with a performance period ending on December 31, 2017, the relative weighting of each target and the related payout percentage of the bonus potential are described below:
| Award Formula Component | Threshold (33% Payout) | Target (66% Payout) | Maximum (100% Payout) | Actual attained level | Payout percentage | |||||||||||||||
| Return on Assets 2015-2017 three-year average (50% weighting) | 0.89 | % | 0.92 | % | 1.08 | % | 1.17 | % | 100.00 | % | ||||||||||
| EPS Growth for three years 2015 - 2017 (50% weighting) | 7 | % | 20 | % | 42 | % | 32 | % | 84.55 | % | ||||||||||
| 2015 - 2017 long-term incentive total weighted payout percentage | 92.27 | % | ||||||||||||||||||
In 2015, the Committee established an additional performance goal or “kicker” goal applicable to the long-term incentive compensation awards based upon the achievement of growth in total assets, consistent with the Company’s strategic growth objectives. Upon the achievement of this additional goal, the Committee may grant, within its sole discretion, to each Named Executive Officer an additional payout of from 10% to 25% of the target bonus potential under the long-term incentive compensation awards as set forth below:
| Bonus Potential Dollar Amount | ||||||||||||||||
| Executive Officer | % of Target Bonus | Threshold | % of Target Bonus | Maximum | ||||||||||||
| Donald P. Hileman | 10 | % | $ | 20,671 | 25 | % | $ | 51,679 | ||||||||
| Kevin T. Thompson | 10 | % | $ | 8,277 | 25 | % | $ | 20,694 | ||||||||
| Gregory P. Allen | 10 | % | $ | 7,601 | 25 | % | $ | 19,002 | ||||||||
| John R. Reisner | 10 | % | $ | 6,962 | 25 | % | $ | 17,404 | ||||||||
| Dennis E. Rose | 10 | % | $ | 4,289 | 25 | % | $ | 10,723 | ||||||||
No additional payout may be granted by the Committee for achievement of this additional performance goal if the Named Executive Officer has achieved the maximum potential payout under such individual’s long-term incentive compensation award based upon the primary performance criteria. The Committee, thus, may not award a payout for achievement of the additional performance goal if such payout would result in an overall payout above the maximum bonus potential. In addition, the Named Executive Officer must achieve the threshold level of performance under the primary performance criteria before being eligible to earn any payout based upon the additional performance goal.
The Committee continued the “kicker” goal as a component under the 2017 long-term incentive compensation awards. The levels established for this goal for the 2017-2019 performance period are described below:
| Award Formula Component | Threshold | Target | Maximum | |||||||||
| Total Assets (in thousands) | $ | 3,300,000 | $ | 3,800,000 | $ | 4,300,000 | ||||||
Achievement of the performance levels are determined by the Committee, in its sole discretion.
For the 2015 long-term incentive compensation awards with a performance period ending on December 31, 2017, the payout percentage of the bonus potential under the additional performance goal, subject to achievement of threshold levels under the primary performance criteria and limited to the maximum bonus potential under the 2015 long-term incentive compensation awards, is described below:
| Award Formula Component | Threshold | Target | Maximum | Actual Attained | Payout Percentage | |||||||||||||||
| Total Assets (in thousands) | $ | 2,700,000 | $ | 3,200,000 | $ | 3,700,000 | $ | 2,993,604 | 14.40 | % | ||||||||||
Clawback Policy
In addition, the Board has adopted an incentive compensation clawback policy providing for a three-year review period of reported results of the Company to ensure that incentive compensation for all executive officers (including the Named Executive Officers) is paid based on accurate financial and operating data and the correct calculation of performance against incentive targets. The policy provisions allow the Company to recover incentive awards previously paid or awarded. A copy of this policy is posted on the Company’s website athttp://www.fdef.com under the link “Governance Documents.”
Retirement Benefits
All of our employees, including the Named Executive Officers, are eligible to participate in the First Defiance Financial Corp. 401(k) Employee Savings Plan (the “Savings Plan”). The Savings Plan is a tax-qualified retirement savings plan pursuant to which all employees are able to contribute up to the limit prescribed by the Internal Revenue Service to the Savings Plan on a before-tax basis. We maintain a safe harbor plan that matches 100% of the first 3% of pay that is contributed to the Savings Plan plus 50% of the salary deferrals between 3% and 5% of compensation. All employee contributions to the Savings Plan are fully vested upon contribution, and our matching contribution is vested upon completion of a minimum service requirement. A restoration plan is maintained for Mr. Hileman and Mr. Thompson which provides for elective deferrals and matching contributions in excess of the Savings Plan caps. The matching contributions under the restoration plan in fiscal year 2017 are included in the All Other Compensation column of the Summary Compensation Table and reported under “Company Deferred Compensation Plan Contribution” in footnote 3 to the Summary Compensation Table.
The Named Executive Officers are entitled to participate in the First Defiance Deferred Compensation Plan, which enables the Named Executive Officers to defer up to 80% of their base salary and up to 100% of bonus payments. The First Defiance Deferred Compensation Plan is discussed in further detail under the heading “Executive Compensation — Nonqualified Deferred Compensation” below.
Perquisites and Other Personal Benefits
We provide our Named Executive Officers with perquisites and other personal benefits that the Committee believes are reasonable and consistent with our overall compensation program to better enable us to attract and retain employees for key positions. The Committee periodically reviews the levels of perquisites and other personal benefits provided to Named Executive Officers.
In 2017, we provided each of the Named Executive Officers, other than Mr. Allen, with the option to receive a $600 monthly automobile allowance, only Mr. Rose exercised the option. We provide Mr. Allen the use of a Company-owned vehicle. Each Named Executive Officer is eligible, upon relocation, to receive reimbursement for certain reasonable expenses associated with the costs of such relocation. The Company considers reimbursement requests for country club and other social organization membership for its senior officers, including the Named Executive Officers, for certain business purposes.
We offer an Executive Group Life Post-Separation Plan, which provides death benefits equal to two times the executive’s base salary. All of the Named Executive Officers participate in the Executive Group Life Post-Separation Plan, except Mr. Thompson and Mr. Reisner.
The value of these perquisites is included in column (g) of the Summary Compensation Table.
Employment and Change in Control Agreements
We have employment or change of control agreements with certain key employees, including the Named Executive Officers. These agreements include provisions for severance payments upon a change of control and are designed to promote stability and continuity of senior management. Information regarding applicable payments under such agreements for the Named Executive Officers is provided under the heading “Executive Compensation — Potential Payments Upon Termination or Change in Control” below.
Section 162(m)
Prior to December 22, 2017, when the Tax Cuts and Jobs Act of 2017 (“TCJA”) was signed into law, Section 162(m) of the Internal Revenue Code generally disallowed a tax deduction to publicly held companies for compensation paid to certain “covered employees” in excess of $1 million per covered employee in any year, except to the extent that the compensation in excess of the limit qualified as performance-based. In connection with fiscal 2017 compensation decisions, the Compensation Committee and the Board of Directors considered the potential tax deductibility of executive compensation under Section 162(m) of the Internal Revenue Code and sought to qualify certain elements of these applicable executives’ compensation as performance-based while also providing amounts and types of compensation that would best fulfill the objectives of the Company’s compensation program.
Under the TCJA, the performance-based exception has been repealed and the $1 million deduction limit now applies to (1) anyone serving as the chief executive officer or the chief financial officer at any time during the taxable year, (2) the top three other highest compensated executive officers serving at the end of the taxable year, and (3) any individual who had been a covered employee for any taxable year of the company that started after December 31, 2016. However, the new rules do not apply to remuneration provided pursuant to a written binding contract in effect on November 2, 2017 that is not modified in any material respect after that date. Because of ambiguities and uncertainties as to the application and interpretation of this transition relief, no assurance can be given that compensation intended to satisfy the requirements for exemption from Section 162(m) will avoid the deduction limit. We believe that the amount of compensation paid to our executive officers that can be deducted will decrease compared to prior years.
The Board of Directors has not adopted a formal policy regarding tax deductibility of compensation paid to our executive officers. The Board of Directors may authorize compensation that might not be deductible, and may modify compensation that was initially intended to be exempt from Section 162(m), if it determines that such compensation decisions are in the best interests of the Company and its shareholders.
COMPENSATION COMMITTEE REPORT
First Defiance’s Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and our annual report on Form 10-K.
Samuel S. Strausbaugh, Chairman
Terri A. Bettinger
John L. Bookmyer
Jean A. Hubbard
February 20, 2018
EXECUTIVE COMPENSATION
Summary Compensation Table
The table below summarizes the total compensation paid or earned by each of the Named Executive Officers for the fiscal years ended December 31, 2017, 2016 and 2015. The Named Executive Officers include those persons serving as our CEO and CFO during 2017 and our three other most highly compensated executive officers.
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | |||||||||||||||||||
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Non-Equity Incentive Plan Compen- sation ($)(2) | All Other Compen- sation ($)(3) | Total ($) | |||||||||||||||||||
| Donald P. Hileman | 2017 | $ | 450,000 | - | $ | 279,065 | $ | 221,657 | $ | 30,883 | $ | 981,605 | ||||||||||||||
| President & Chief Executive | 2016 | 430,000 | $ | 465 | 250,527 | 246,047 | 27,168 | 954,207 | ||||||||||||||||||
| Officer of First Defiance | 2015 | 400,000 | - | 213,505 | 238,212 | 19,805 | 871,522 | |||||||||||||||||||
| and First Federal; CEO of | ||||||||||||||||||||||||||
| First Insurance Group of the | ||||||||||||||||||||||||||
| Midwest, Inc. | ||||||||||||||||||||||||||
| Kevin T. Thompson | 2017 | $ | 231,658 | - | $ | 111,745 | $ | 88,751 | $ | 16,690 | $ | 448,843 | ||||||||||||||
| Executive Vice President & | 2016 | 224,911 | $ | 465 | 127,546 | 100,096 | 13,459 | 466,477 | ||||||||||||||||||
| Chief Financial Officer | 2015 | 218,360 | - | 90,659 | 101,142 | 10,516 | 420,6786 | |||||||||||||||||||
| of First Defiance and First | ||||||||||||||||||||||||||
| Federal | ||||||||||||||||||||||||||
| John R. Reisner | 2017 | $ | 194,847 | - | $ | 93,981 | $ | 79,169 | $ | 13,811 | $ | 381,808 | ||||||||||||||
| Executive Vice President | 2016 | 187,353 | $ | 465 | 110,477 | 81,936 | 8,773 | 389,004 | ||||||||||||||||||
| & Chief Risk Officer and | 2015 | 180,147 | - | 74,796 | 83,442 | 10,973 | 349,358 | |||||||||||||||||||
| Legal Counsel of First Defiance | ||||||||||||||||||||||||||
| and First Federal | ||||||||||||||||||||||||||
| Gregory R. Allen | 2017 | $ | 212,695 | - | $ | 102,612 | $ | 60,061 | $ | 27,767 | $ | 403,134 | ||||||||||||||
| Executive Vice President & | 2016 | 206,500 | $ | 465 | 93,812 | 97,408 | 22,389 | 420,574 | ||||||||||||||||||
| Community Banking President | 2015 | 200,000 | - | 83,021 | 92,638 | 22,862 | 398,521 | |||||||||||||||||||
| of First Federal | ||||||||||||||||||||||||||
| Dennis E. Rose | 2017 | $ | 167,988 | - | $ | 57,904 | $ | 50,228 | $ | 14,835 | $ | 290,955 | ||||||||||||||
| Executive Vice President & | 2016 | 163,142 | $ | 465 | 45,978 | 30,001 | 11,030 | 250,616 | ||||||||||||||||||
| Director of Strategy | 2015 | 167,744 | - | 44,959 | 11,621 | 259,918 | ||||||||||||||||||||
| Management | ||||||||||||||||||||||||||
| Name | Club Membership | Automobile Allowance or Personal Use of Company Automobile | 401(k) Match | Value of Insurance | Employee Stock Purchase Plan Match (a) | Company Deferred Compensation Plan Contribution | Total | |||||||||||||||||||||
| Donald P. Hileman | $ | - | $ | - | $ | 10,800 | $ | 3,549 | $ | 390 | $ | 16,144 | $ | 30,883 | ||||||||||||||
| Kevin T. Thompson | $ | - | $ | - | $ | 10,800 | $ | 1,594 | $ | 1,800 | $ | 2,496 | $ | 16,690 | ||||||||||||||
| John R. Reisner | $ | - | $ | - | $ | 10,800 | $ | 1,361 | $ | 1,650 | $ | - | $ | 13,811 | ||||||||||||||
| Gregory R. Allen | $ | 7,449 | $ | 7,052 | $ | 10,800 | $ | 666 | $ | 1,800 | $ | - | $ | 27,767 | ||||||||||||||
| Dennis E. Rose | $ | - | $ | 6,111 | $ | 8,316 | $ | 408 | $ | - | $ | - | $ | 14,835 | ||||||||||||||
2017 Grants of Plan-Based Awards
During 2017, we made awards to Named Executive Officers as part of short-term and long-term incentive compensation under the Incentive Compensation Plan, as described above. The short-term incentive compensation awards provide for cash payments. The long-term incentive compensation awards are made in RSUs and settled in FDEF shares.
| Estimated Future Payouts Under Non- Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | |||||||||||||||||||||||||||||||
| Name | Grant Date | Date Approved by Compensation Committee | Threshold ($) | Target ($) | Maximum ($) | Threshold (Shares/ Units) | Target (Shares/ Units) | Maximum (Share/ Units) | Grant Date Fair Value of Stock Awards | |||||||||||||||||||||||
| Donald P. Hileman | 01/01/17 | 12/19/2016 | $ | 101,250 | $ | 202,500 | $ | 303,750 | 2,017 | 4,033 | 6,111 | $ | 310,072 | |||||||||||||||||||
| Kevin T. Thompson | 01/01/17 | 12/19/2016 | $ | 40,540 | $ | 81,080 | $ | 121,620 | 808 | 1,615 | 2,447 | $ | 124,161 | |||||||||||||||||||
| John R. Reisner | 01/01/17 | 12/19/2016 | $ | 34,598 | $ | 69,196 | $ | 103,794 | 679 | 1,358 | 2,058 | $ | 104,423 | |||||||||||||||||||
| Gregory R. Allen | 01/01/17 | 12/19/2016 | $ | 37,222 | $ | 74,443 | $ | 111,665 | 742 | 1,483 | 2,247 | $ | 114,013 | |||||||||||||||||||
| Dennis E. Rose | 01/01/17 | 12/19/2016 | $ | 21,093 | $ | 42,186 | $ | 63,629 | 418 | 837 | 1,268 | $ | 64,338 | |||||||||||||||||||
Outstanding Equity Awards at Fiscal Year-End 2017
The following table provides information concerning unexercised options and non-vested stock awards for each Named Executive Officer outstanding as of the end of the most recently completed fiscal year. Each outstanding award is represented by a separate row which indicates the number of securities underlying the award. The table also discloses the exercise price and the expiration date.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options(#) Exercisable | Number of Securities Underlying Unexercised Options(#) Unexercisable | Option Exercise Price | Option Expiration Date | Number of shares or units of stock that have not vested (#) | Market (#) | Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#)(1) | Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($) | ||||||||||||||||||||||
| Donald P. Hileman | - | - | 12,868 | $ | 668,745 | |||||||||||||||||||||||||
| Kevin T. Thompson | - | - | 5,207 | $ | 270,623 | |||||||||||||||||||||||||
| John R. Reisner | - | - | 4,355 | $ | 226,340 | |||||||||||||||||||||||||
| Gregory R. Allen | - | - | 4,781 | $ | 248,484 | |||||||||||||||||||||||||
| 1,000 | 0 | $ | 17.64 | 04/21/2018 | ||||||||||||||||||||||||||
| Dennis E. Rose | - | - | 2,358 | $ | 122,556 | |||||||||||||||||||||||||
Option Exercises and Stock Vested In 2017
The following table provides information concerning exercises of stock options and vesting of stock awards during the most recently completed fiscal year for each of the Named Executive Officers on an aggregated basis. The table reports the number of shares for which the options were exercised or vested and the aggregate dollar value realized upon exercising those options or when the stock awards became vested.
| Option Awards | Stock Awards | |||||||||||||||
| Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||||||
| Donald P. Hileman | - | $ | - | 8,358 | $ | 434,365 | ||||||||||
| Kevin T. Thompson | - | $ | - | 3,549 | $ | 184,442 | ||||||||||
| John R. Reisner | - | $ | - | 2,928 | $ | 152,168 | ||||||||||
| Gregory R. Allen | 1,000 | $ | 23,110 | 3,250 | $ | 168,903 | ||||||||||
| Dennis E. Rose | - | $ | - | 1,483 | $ | 77,072 | ||||||||||
Nonqualified Deferred Compensation
Pursuant to the First Defiance Deferred Compensation Plan, certain executives, including our Named Executive Officers, as well as our directors may defer receipt of up to 80% of their base compensation and up to 100% of non-equity incentive plan compensation and, in the case of directors, up to 100% of directors’ fees. Deferral elections are made by eligible executives or directors in December of each year for amounts to be earned in the following year.
Amounts deferred in the First Defiance Deferred Compensation Plan may be invested in any funds available under the Plan. The rates of return of each fund are at market.
Benefits under the First Defiance Deferred Compensation Plan are generally paid beginning in the year following the executive’s retirement or termination. However, the Plan has provisions for scheduled “in-service” distributions from the Plan, and it also allows for hardship withdrawals upon the approval of the Committee. Retirement benefits are paid either in a lump sum or in scheduled installment payments when the executive’s termination is considered a retirement. All other distributions are made in lump sum payments.
The following table provides information with respect to our Named Executive Officers’ participation in the First Defiance Deferred Compensation Plan. None of our Named Executive Officers, except Mr. Hileman, received a withdrawal or distribution under the Plan.
| Executive Contributions in Last Fiscal Year | Registrant Contributions in Last Fiscal Year (1) | Aggregate Earnings in Last Fiscal Year | Executive Distributions in Last Fiscal Year | Aggregate Balance at Last Fiscal Year End (2) | ||||||||||||||||
| Name | ($) | ($) | ($) | ($) | ($) | |||||||||||||||
| Donald P. Hileman | $ | 0 | $ | 16,144 | $ | 18,351 | ($ | 63,491 | ) | $ | 111,721 | |||||||||
| Kevin T. Thompson | $ | 0 | $ | 2,496 | $ | 10 | $ | 2,506 | ||||||||||||
| John R. Reisner | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||
| Gregory R. Allen | $ | 0 | $ | 47,007 | $ | 261,891 | ||||||||||||||
| Dennis E. Rose | $ | 0 | $ | 7,035 | $ | 41,515 | ||||||||||||||
Potential Payments Upon Termination or Change in Control
The discussion below summarizes the estimated payments to be made under each contract, agreement, plan or arrangement that provides for payments to a Named Executive Officer at, following, or in connection with any termination of employment including by resignation, severance, retirement, disability or a constructive termination, by a change of control of the Company, or by a change in the Named Executive Officer’s responsibilities (that may not result in a termination of employment).
Payments Made Upon Termination
Regardless of the manner in which a Named Executive Officer’s employment terminates, the executive is entitled to receive amounts earned during the term of employment. Such amounts include:
Payments Made Upon Retirement
In the event of retirement of a Named Executive Officer, in addition to the items identified above, the executive will be entitled to the following:
Payments Made Upon Death or Disability
In the event of the death or disability of a Named Executive Officer, in addition to the benefits listed under the headings “Payments Made upon Termination” and “Payments Made Upon Retirement” above, the Named Executive Officer will receive benefits under our disability plan or payments under our life insurance plans, as appropriate. A Named Executive Officer who dies or becomes disabled prior to retirement will only have one year after death or disability (or the original term, if shorter) to exercise all outstanding stock options.
Payments Made Upon Change of Control
Mr. Hileman, Mr. Thompson and Mr. Allen each have an employment agreement with First Defiance and First Federal, the terms of which are all similar. Under the employment agreements, if the executive’s employment is terminated for (and for Mr. Hileman and Mr. Thompson, up to six months after) a change of control (other than termination by us for cause or by reason of death or disability) or if the executive terminates his employment for “good reason” (as defined in the employment agreements), in addition to the benefits listed under the heading “Payments Made Upon Termination,” the executive will receive a lump sum severance payment of 2.99 times the employee’s average annual compensation for the five most recent taxable years ending during the calendar year in which the Notice of Termination occurs. Under the employment agreements, compensation is defined as base salary plus non-equity incentive bonus. In addition, the employment agreements provide that the executive will be entitled to continued participation in insurance and other benefit plans for the earlier to occur of the expiration of the term of the employment agreement or the date upon which the executive becomes a full-time employee of another employer.
Mr. Reisner has a change of control and non-solicitation agreement with First Defiance and First Federal. Under the terms of this agreement, in the event his employment is terminated within six months prior to a change of control or within one year after a change of control, he is entitled to receive an amount equal to two times his base salary most recently set prior to the occurrence of the change in control. He is also entitled to continued health insurance coverage at no cost until the earlier of one year or the date on which he is included in another employer’s health insurance plan.
Mr. Rose has a change of control and non-compete agreement with First Defiance and First Federal. Under the terms of this agreement, in the event his employment is terminated within six months prior to a change of control or within one year after a change of control, he is entitled to receive an amount equal to his annual salary most recently set prior to the occurrence of the change in control.
Generally, pursuant to the foregoing employment and change of control agreements, a change of control has the meaning set forth in Section 409A(a)(2)(A)(v) of the Internal Revenue Code of 1986, as amended. As a condition to receiving payments under their respective employment or change of control agreements, each of Mr. Hileman and Mr. Thompson must execute a general release of claims.
All of the Named Executive Officers’ unvested stock options will automatically vest and become exercisable in the event of a change in control. Further, all or a portion of the individual’s unvested restricted stock and unvested restricted stock units will vest in the event that the individual is terminated without cause after a change in control but before the end of the performance period covered by the restricted stock or restricted stock unit award. The portion of the unvested restricted stock and unvested restricted stock units that vests is the greater of (a) the number of shares that would have vested if the individual had been employed for the full performance period and the target level of performance had been achieved for each performance goal, or (b) the number of shares that would vest based on the actual performance of the company and peer group through the fiscal quarter ending closest to the date of such termination. Such unvested restricted stock and restricted stock units do not vest in the event of termination for reasons other than retirement, death or disability, even if such termination is for “good reason.”
The table below summarizes the estimated payments set forth in the agreements described above. The amounts shown assume that such termination was effective as of December 31, 2017, and, thus, include amounts earned through such time and are estimates of the amounts which would be paid out to the executives upon their termination. The actual amounts to be paid out can only be determined at the time of such executive’s separation from us.
| Executive Benefits and Payments upon Termination | Voluntary Termination | For Cause Termination | Involuntary Not for Cause Or Voluntary Good Reason Termination | Involuntary Change of Control Termination (CIC) | Death | Disability | ||||||||||||||||||
| Donald P. Hileman | ||||||||||||||||||||||||
| Severance | – | – | $ | 640,414 | $ | 1,684,471 | – | – | ||||||||||||||||
| Accelerated vesting of equity awards | – | – | – | $ | 668,745 | – | – | |||||||||||||||||
| Kevin T. Thompson | ||||||||||||||||||||||||
| Severance | – | – | $ | 310,303 | $ | 804,952 | – | – | ||||||||||||||||
| Accelerated vesting of equity awards | – | – | – | $ | 270,623 | – | – | |||||||||||||||||
| John R. Reisner | ||||||||||||||||||||||||
| Severance | – | – | – | $ | 403,134 | – | – | |||||||||||||||||
| Accelerated vesting of equity awards | – | – | – | $ | 226,340 | – | – | |||||||||||||||||
| Gregory R. Allen | – | – | ||||||||||||||||||||||
| Severance | – | – | $ | 762,488 | $ | 762,488 | – | – | ||||||||||||||||
| Accelerated vesting of equity awards | – | – | – | $ | 282,814 | – | – | |||||||||||||||||
| Dennis E. Rose | – | – | ||||||||||||||||||||||
| Severance | – | – | $ | $ | 168,744 | – | – | |||||||||||||||||
| Accelerated vesting of equity awards | – | – | – | $ | 122,556 | – | – | |||||||||||||||||
PROPOSAL 2
Non-Binding Advisory Vote on Executive Compensation
Our shareholders have an opportunity to approve, in a non-binding advisory vote, the compensation of our Named Executive Officers as disclosed in this Proxy Statement. Our Named Executive Officers are those individuals included in the Summary Compensation Table on page 30 in this Proxy Statement. The compensation being approved is the compensation required to be disclosed in this Proxy Statement by the rules of the SEC, including the compensation described in the Compensation Discussion and Analysis, accompanying tables and any related material disclosed in this Proxy Statement.
The vote is advisory in nature and therefore will not bind the Board to take any particular action. Nevertheless, if there is a significant vote against, the Board intends to attempt to determine the reason for such negative votes and may make changes to executive compensation based on its findings.
The Board has structured our executive compensation program with the following objectives in mind: compensation should be directly linked to corporate operating performance, and all officers should receive fair and equitable compensation for their respective levels of responsibility and supervisory authority compared to their peers within the Company as well as their peers within the financial services industry. The Board urges you to read the “Compensation Discussion and Analysis” starting on page 20 of this Proxy Statement and the related compensation tables and narrative through page 37.
The Board is asking you to approve the following resolution, which will be submitted for a shareholder vote at the Annual Meeting:
“Resolved, that the shareholders approve the compensation of First Defiance’s named executive officers as named in the Summary Compensation Table of the Company’s 2018 Proxy Statement, as described in the ‘Compensation Discussion and Analysis,’ the compensation tables and the related disclosure contained on pages 20 - 37 in the Proxy Statement.”
Because your vote isadvisory, it will not be binding upon the Board, overrule any decision made by the Board, or create or imply any additional fiduciary duty by the Board. The Compensation Committee may, however, take into account the outcome of the vote when considering future executive compensation arrangements.
BENEFICIAL OWNERSHIP
The following table includes, as of the Voting Record Date, certain information as to the FDEF shares beneficially owned by (i) the only persons or entities, including any “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (“1934 Act”), known to us to be the beneficial owner of more than 5% of the issued and outstanding shares, (ii) each director and nominee, (iii) the Named Executive Officers, and (iv) all of our directors and executive officers as a group.
| Amount and Nature of Beneficial Ownership | ||||||||||||
| Name of Beneficial Owner (a) | Shares Owned | Right to Acquire Beneficial Ownership Under Options Exercisable Within 60 Days | Percent of Class (b) | |||||||||
| Dimensional Fund Advisors LP | 804,314 | (d) | — | 7.90 | % | |||||||
| BlackRock, Inc. | 1,170,964 | (c) | — | 11.5 | % | |||||||
| Robert E. Beach | 49,692 | — | — | |||||||||
| Terri A. Bettinger | 0 | — | — | |||||||||
| John L. Bookmyer | 8,528 | — | — | |||||||||
| Dr. Douglas A. Burgei | 24,773 | (e) | — | — | ||||||||
| Thomas K. Herman | 32 | — | — | |||||||||
| Jean A. Hubbard | 6,390 | 1,000 | — | |||||||||
| Barbara A. Mitzel | 2,240 | (e) | — | — | ||||||||
| Charles D. Niehaus | 3,808 | — | — | |||||||||
| Thomas A. Reineke | 4,210 | (e) | — | — | ||||||||
| Mark A. Robison | 2,203 | — | — | |||||||||
| William J. Small | 91,280 | (e) | — | — | ||||||||
| Samuel S. Strausbaugh | 8,883 | — | — | |||||||||
| Gregory R. Allen | 23,655 | 1,000 | — | |||||||||
| Donald P. Hileman | 35,880 | — | — | |||||||||
| Kevin T. Thompson | 9,624 | — | — | |||||||||
| John R. Reisner | 5,557 | — | — | |||||||||
| Dennis E. Rose | 15,577 | — | — | |||||||||
| All current directors and executive officers as a group (21 persons) | 317,453 | (e) | 2,000 | 3.14 | % | |||||||
RELATED PERSON TRANSACTIONS
All of our directors and executive officers have commercial, consumer or mortgage banking relationships with First Federal and a number have insurance relationships through First Defiance’s wholly-owned subsidiary,First Insurance Group of the Midwest, Inc. (“First Insurance”). All loan and deposit relationships with our directors and executive officers (i) were made in the ordinary course of business; (ii) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans or deposits with persons not related to First Federal; and (iii) did not involve more than the normal risk of collectability or present other unfavorable features.
In the fiscal year ended December 31, 2017, the Bank purchased printing services, office supplies, and financial supplies totaling $561,715 from Financial Forms & Systems, Inc., of which James R. Williams, III’s brother, Jeffrey Williams, is a director and President and James R. Williams, III is an advisor. As of December 31, 2017, James R. Williams, III was an executive officer of the Company.
On April 13, 2017, the Company acquired Corporate One Benefits Agency, Inc. (“Corporate One”), which became a part of First Insurance. Corporate One was the insurance agent for the Reineke Family Dealerships’ health insurance plan. Since the acquisition, the agent has been First Insurance. Mr. Reineke, a director of the Company, is the principal and controlling shareholder, as well as President and CEO, of the Reineke Family Dealerships. Reineke Family Dealerships pays an annual premium for its health insurance of approximately $600,000. This premium is paid in the ordinary course of business and is in an amount that would be charged for a comparable health insurance plan issued to persons and entities that are not related to the Company.
We have a policy that covers all loans to our directors and executive officers. In accordance with that policy, any loan request for directors or executive officers that, when aggregated with other extensions of credit from First Federal exceeds $500,000 requires prior approval of the Board. Loans to executive officers, which when aggregated with existing extensions of credit are less than $500,000, do not require prior approval of the Board, but must be reported at the next Board meeting. Loans to directors, which when aggregated with existing extensions of credit are less than $500,000, do not require Board approval and are not required to be reported to the Board at the next Board meeting. However, all loan transactions with related persons are reported to and ratified by the full Board and the Audit Committee quarterly.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who own more than ten percent of our shares, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission and to provide us with a copy of such form. Based on our review of the copies of such forms it has received, we believe that our executive officers and directors complied with all filing requirements applicable to them with respect to transactions during the fiscal year ended December 31, 2017, except that each of Mr. Brent L. Beard and Mr. Beach filed one late Form 4 reporting one transaction.
PROPOSAL 3
Approval of the First Defiance Financial Corp. 2018 Equity Incentive Plan
The Board proposes that the shareholders approve the adoption of the First Defiance Financial Corp. 2018 Equity Incentive Plan (the “2018 Equity Plan”). On February 27, 2018, the Board adopted the 2018 Equity Plan, subject to approval by the shareholders. If the shareholders approve the 2018 Equity Plan, this Plan will replace the First Defiance Financial Corp. 2010 Equity Incentive Plan (the “2010 Equity Plan”), which will expire by its terms on April 20, 2020. The Board of Directors believes that the Company’s interests are best advanced by continuing to provide incentives for the efforts of employees, officers, non-employee directors and other service providers, in each case who are selected to be participants, to continue working toward and contributing to the success and progress of the Company and tying such incentives directly to the Company’s success and progress.
Set forth below is a summary of the material features of the 2018 Equity Plan, which are substantially similar to the terms of the 2010 Equity Plan. The below summary is qualified in its entirety by the text of the 2018 Equity Plan, a copy of which is attached to this Proxy Statement as Annex A.
The purpose of the 2018 Equity Plan is to promote our long-term financial success and increase shareholder value by motivating performance through incentive compensation. The 2018 Equity Plan is intended to encourage participants to acquire ownership interests in the Company, attract and retain talented employees, directors and consultants and enable participants to participate in our long-term growth and financial success. The 2018 Equity Plan serves these purposes by making equity- and cash-based awards (“Awards”) available for grant to eligible participants in the form of:
The 2018 Equity Plan, if approved by the shareholders, will replace the 2010 Equity Plan prior to its expiration. Awards outstanding under the 2010 Equity Plan will remain in effect in accordance with their respective terms.
Administration
The Compensation Committee will administer the 2018 Equity Plan. The Compensation Committee will be comprised of at least two directors, each of whom will be a “non-employee” director (within the meaning of Rule 16b-3 under the Exchange Act).
In its capacity as plan administrator, the Compensation Committee will determine which participants will be granted Awards, the type of each Award granted and the terms and conditions of each Award. The Compensation Committee will also have full power and authority to (1) establish, amend and rescind rules and regulations relating to the 2018 Equity Plan, (2) interpret the 2018 Equity Plan and all related award agreements and (3) make any other determinations that it deems necessary or desirable for the administration of the 2018 Equity Plan. Any action taken by the Compensation Committee will be final, binding and conclusive on all parties.
With respect to each Award granted under the 2018 Equity Plan, we will enter into a written or electronic award agreement with the participant which describes the terms and conditions of the Award, including (1) the type of Award and when and how it may be exercised or earned, (2) any exercise price associated with the Award, (3) how the Award will or may be settled and (4) any other applicable terms and conditions affecting the Award.
Eligibility
The Compensation Committee may select any (1) employees of the Company and its affiliates, and (2) non-employee directors of the Company or its affiliates to receive Awards under the 2018 Equity Plan. As of March 9, 2018, there were 12 non-employee directors of the Company and approximately 675 employees of the Company and its affiliates.
Available Common Shares
Subject to the adjustments discussed below, the aggregate number of Common Shares available for the grant of Awards under the 2018 Equity Plan will be 450,000. Common Shares issued under the 2018 Equity Plan may consist of (1) treasury shares, (2) authorized but unissued Common Shares not reserved for any other purpose or (3) Common Shares purchased by us or on our behalf in the open market for such purpose.
Upon the grant of an Award, we will reduce the number of Common Shares available for issuance under the 2018 Equity Plan by an amount equal to the number of Common Shares subject to such Award. The full number of Common Shares subject to any SARs or Options will count against the number of Common Shares available for issuance regardless of the number of Common Shares used to settle such Awards upon exercise.
The following Common Shares may be awarded under the 2018 Equity Plan and do not count against the 450,000 share limit:
In the event of any Common Share dividend, Common Share split, recapitalization, merger, reorganization, consolidation, combination, spin-off, distribution of assets to shareholders, exchange of Common Shares or any other change affecting the Common Shares, the Compensation Committee will make such substitutions and adjustments as it deems equitable and appropriate to (1) the number of Common Shares that it may issue under the 2018 Equity Plan, (2) any Common Share-based limits imposed under the 2018 Equity Plan and (3) the exercise price, number of Common Shares and other terms or limitations applicable to outstanding Awards.
On March 9, 2018, the closing price of the Common Shares on NASDAQ was $57.65 per share.
Types of Awards
Options. The Compensation Committee may grant Options at any time during the term of the 2018 Equity Plan in such number, and upon such terms and conditions, as it determines. The exercise price of any Option will be at least equal to the fair market value of the Common Shares (i.e., the closing price of the Common Shares on NASDAQ) on the date the Option is granted, and may be paid (1) in cash, (2) by tendering previously-acquired Common Shares, (3) by a cashless exercise and/or (4) through any other method approved by the Compensation Committee. The Compensation Committee will also determine the term of the Option (which may not exceed ten years), the vesting terms and conditions and any other terms and conditions of the Option, all of which will be reflected in the related award agreement. The award agreement will specify whether the Option is intended to be an ISO or a NQSO. The Compensation Committee may grant all of the Common Shares available for issuance under the 2018 Equity Plan with respect to ISOs. However, the Compensation Committee may only grant ISOs to employees of the Company or its subsidiaries, and ISOs will be subject to certain additional restrictions, including without limitation compliance with the requirements of Section 422 of the Code.
Stock Appreciation Rights. The Compensation Committee may grant SARs at any time during the term of the 2018 Equity Plan in such number, and upon such terms and conditions, as it determines. The exercise price of any SAR will be at least equal to the fair market value of the Common Shares on the date the SAR is granted. The Compensation Committee will also determine the term of the SAR (which may not exceed ten years), the vesting terms and conditions and any other terms and conditions of the SAR, all of which will be reflected in the related award agreement. Upon exercise of a SAR, a participant will be entitled to receive an amount equal to the difference between (1) the fair market value of a Common Share on the exercise date and (2) the exercise price per Common Share, multiplied by the number of Common Shares with respect to which the SAR is exercised. A SAR may be settled in Common Shares, cash or a combination thereof, as specified by the Compensation Committee in the related award agreement.
Restricted Stock. The Compensation Committee may grant shares of Restricted Stock at any time during the term of the 2018 Equity Plan in such number, and upon such terms and conditions, as it determines. Restricted Stock consists of Common Shares that are issued to a participant but are subject to forfeiture based upon satisfaction of certain terms, conditions and restrictions which may include, without limitation, (1) a requirement that participants pay a purchase price for each share of Restricted Stock, (2) restrictions based on the achievement of specific performance goals, (3) time-based restrictions or (4) holding requirements or sale restrictions upon vesting. The Compensation Committee will determine the terms, conditions and restrictions applicable to each Restricted Stock Award, all of which will be reflected in the related award agreement.
During the period that the shares of Restricted Stock remain subject to forfeiture, (1) the Company may retain the certificates representing shares of Restricted Stock, (2) a participant may not sell or otherwise transfer the shares of Restricted Stock and (3) unless otherwise provided in the related award agreement, a participant will generally be entitled to exercise full voting rights and receive all dividends paid with respect to the shares of Restricted Stock (except that receipt of any such dividends will be subject to the same terms, conditions and restrictions as apply to the shares of Restricted Stock). At the end of the restriction period, (1) the participant will forfeit the shares of Restricted Stock if all terms, conditions and restrictions specified in the related award agreement have not been met, or (2) we will distribute the shares of Restricted Stock to the participant if all terms, conditions and restrictions specified in the related award agreement have been met.
Other Stock-Based Awards. The Compensation Committee may grant Other Stock-Based Awards at any time during the term of the 2018 Equity Plan in such number, and upon such terms and conditions, as it determines. The Compensation Committee may grant Other Stock-Based Awards in such form as it determines, including, without limitation, (1) unrestricted Common Shares or (2) time-based or performance-based restricted stock units that are settled in Common Shares and/or cash. The award agreement relating to each Other Stock-Based Award will specify the terms and conditions upon which the Award will vest, the form of settlement (which may be cash, Common Shares or a combination thereof), whether the Award will include dividend equivalents and any other terms and conditions of the Award.
Performance-Based Awards. Under the terms of the 2018 Equity Plan, the Compensation Committee may grant Cash Awards, Restricted Stock Awards and Other Stock-Based Awards subject to the attainment of such performance goals as the Compensation Committee may determine from time to time during a specified performance period.
Termination of Employment or Service
The Compensation Committee will determine the extent to which each Award granted under the 2018 Equity Plan will vest and the extent to which a participant will have the right to exercise and/or settle the Award in connection with a participant’s termination of employment or service. Such provisions, which will be reflected in the related award agreement, need not be uniform among all Awards and may reflect distinctions based on the reasons for termination.
Change in Control
Except as otherwise provided in the related award agreement, in the event of a Change in Control (as such term is defined in the 2018 Equity Plan), the Compensation Committee may take such actions, if any, as it deems necessary or desirable with respect to any outstanding Award as of the date of the consummation of such Change in Control. Such actions may include, without limitation, (1) the acceleration of the vesting, settlement and/or exercisability of an Award, (2) the payment of a cash amount in exchange for the cancellation of an Award and/or (3) the issuance of substitute Awards that substantially preserve the value, rights and benefits of any Awards affected by the Change in Control.
Transferability
Except as otherwise provided in a related award agreement, (1) a participant may not sell, transfer, pledge, assign or otherwise alienate or hypothecate an Award, except by will or the laws of descent and distribution and (2) during a participant’s lifetime, only the participant or his or her guardian or legal representative may exercise an Award.
No Rights as a Shareholder
Except as otherwise provided in the 2018 Equity Plan or in a related award agreement, a participant will not have any rights as a shareholder with respect to Common Shares covered by an Award unless and until the participant becomes the record holder of such Common Shares.
Repricing
The 2018 Equity Plan expressly prohibits the Board or Compensation Committee from amending the terms of an outstanding Award to (1) reduce the exercise price of an outstanding Option or SAR or (2) cancel an outstanding Option or SAR in exchange for cash or other Awards (including Options or SARs) having an exercise price less than the exercise price of the original Option or SAR, without shareholder approval.
Effective Date and Term
The 2018 Equity Plan will become effective upon its approval by the shareholders and, unless earlier terminated, will continue until April 24, 2028 (except that the Compensation Committee may not grant any ISOs after February 27, 2028).
Amendment or Termination
The Board or Compensation Committee may amend or terminate the 2018 Equity Plan at any time, except that no amendment or termination may be made without shareholder approval if (1) the amendment materially increases the benefits accruing to participants, (2) the amendment materially increases the aggregate number of Common Shares authorized for grant under the 2018 Equity Plan, (3) the amendment materially modifies the eligibility requirements for participation or (4) such approval is required by any law, regulation or stock exchange rule.
U.S. Federal Income Tax Consequences
The following is a brief summary of the general U.S. federal income tax consequences relating to participation in the 2018 Equity Plan. This summary is based on U.S. federal tax laws and Treasury Regulations in effect on the date of this Proxy Statement and does not purport to be a complete description of the U.S. federal income tax laws. In addition, this summary does not constitute tax advice or describe federal employment, state, local or foreign tax consequences. Each participant should consult with his or her tax advisor concerning the U.S. federal income tax and other tax consequences of participating in the 2018 Equity Plan.
Incentive Stock Options. We intend for ISOs to qualify for special treatment available under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). A participant will not recognize taxable income when an ISO is granted and we will not receive a deduction at that time. A participant will not recognize ordinary income upon the exercise of an ISO provided that the participant was, without a break in service, an employee of the Company or a subsidiary during the period beginning on the grant date of the ISO and ending on the date three months prior to the date of exercise (one year prior to the date of exercise if the participant’s employment is terminated due to Disability).
If the participant does not sell or otherwise dispose of the Common Shares acquired upon the exercise of an ISO within two years from the grant date of the ISO or within one year after the participant receives the Common Shares, then, upon disposition of such Common Shares, any amount realized in excess of the exercise price will be taxed to the participant as a capital gain, and we will not be entitled to a corresponding deduction. The participant generally will recognize a capital loss to the extent that the amount realized is less than the exercise price.
If the foregoing holding period requirements are not met, the participant generally will recognize ordinary income at the time of the disposition of the Common Shares in an amount equal to the lesser of (1) the excess of the fair market value of the Common Shares on the date of exercise over the exercise price or (2) the excess, if any, of the amount realized upon disposition of the Common Shares over the exercise price, and we will be entitled to a corresponding deduction. Any amount realized in excess of the value of the Common Shares on the date of exercise will be capital gain. If the amount realized is less than the exercise price, the participant generally will recognize a capital loss equal to the excess of the exercise price over the amount realized upon the disposition of the Common Shares.
The rules that generally apply to ISOs do not apply when calculating any alternative minimum tax liability. The rules affecting the application of the alternative minimum tax are complex, and their effect depends on individual circumstances, including whether a participant has items of adjustment other than those derived from ISOs.
Nonqualified Stock Options. A participant will not recognize any income when a NQSO is granted, and we will not receive a deduction at that time. However, when a NQSO is exercised, a participant will recognize ordinary income equal to the excess, if any, of the fair market value of the Common Shares that the participant purchased on the date of exercise over the exercise price. If a participant uses Common Shares or a combination of Common Shares and cash to pay the exercise price of a NQSO, the participant will recognize ordinary income equal to the value of the excess of the number of Common Shares that the participant purchases over the number of Common Shares that the participant surrenders, less any cash the participant uses to pay the exercise price. When a NQSO is exercised, we will be entitled to a deduction equal to the ordinary income that the participant recognizes.
If the amount a participant receives upon disposition of the Common Shares that the participant acquired by exercising a NQSO is greater than the aggregate exercise price that the participant paid, the excess will be treated as a long-term or short-term capital gain, depending on whether the participant held the Common Shares for more than one year after the participant acquired them by exercising the NQSO. Conversely, if the amount a participant receives upon disposition of the Common Shares that the participant acquired by exercising a NQSO is less than the aggregate exercise price the participant paid, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the Common Shares for more than one year after the participant acquired them by exercising the NQSO.
Stock Appreciation Rights. A participant will not recognize taxable income when a SAR is granted, and we will not receive a deduction at that time. When a SAR is exercised, a participant will recognize ordinary income equal to the excess of the cash and/or the fair market value of the Common Shares the participant receives over the aggregate exercise price of the SAR, if any, and we will be entitled to a corresponding deduction.
If the amount a participant receives upon disposition of the Common Shares that the participant acquired by exercising a SAR is greater than the aggregate exercise price that the participant paid, the excess will be treated as a long-term or short-term capital gain, depending on whether the participant held the Common Shares for more than one year after the participant acquired them by exercising the SAR. Conversely, if the amount a participant receives upon disposition of the Common Shares that the participant acquired by exercising a SAR is less than the aggregate exercise price that the participant paid, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the Common Shares for more than one year after the participant acquired them by exercising the SAR.
Restricted Stock. Unless a participant makes an election under Section 83(b) of the Code (a “Section 83(b) Election”), the participant generally will not recognize taxable income when Restricted Stock is granted, and we will not receive a deduction at that time. Instead, a participant will recognize ordinary income when the Restricted Stock vests (i.e., when the underlying Common Shares are freely transferable or not subject to a substantial risk of forfeiture) equal to the fair market value of the Common Shares that the participant receives when the terms, conditions and restrictions have been met, less any consideration paid for the Restricted Stock, and we generally will be entitled to a deduction equal to the income that the participant recognizes.
If the amount a participant receives upon disposition of these Common Shares is greater than the fair market value of the Common Shares when the Restricted Stock vested, the excess will be treated as a long-term or short-term capital gain, depending on whether the participant held the Common Shares for more than one year after the Restricted Stock vested. Conversely, if the amount the participant receives upon disposition of these Common Shares is less than the fair market value of the Common Shares when the Restricted Stock vested, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the Common Shares for more than one year after the Restricted Stock vested.
If a participant makes a Section 83(b) Election, the participant will recognize ordinary income on the grant date equal to the fair market value of the Common Shares subject to the Restricted Stock Award on the grant date, and we will be entitled to a deduction equal to the income that the participant recognizes at that time.
However, the participant will not recognize income when (and if) the Restricted Stock vests. If a participant who has made a Section 83(b) Election earns the Common Shares subject to a Restricted Stock Award, any appreciation between the grant date and the date the participant disposes of the Common Shares will be treated as a long-term or short-term capital gain, depending on whether the participant held the Common Shares for more than one year after the grant date. Conversely, if the amount the participant receives upon disposition of these Common Shares is less than the fair market value of the Common Shares on the grant date, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the Common Shares for more than one year after the grant date. Also, if a participant forfeits his or her Restricted Stock, the participant cannot take a tax deduction in connection with the forfeiture of the Restricted Stock subject to a Section 83(b) Election.
Other Stock-Based Awards; Performance-Based Awards. Generally, a participant will not recognize taxable income when an Other Stock-Based Award is granted, and we will not receive a deduction at that time. However, upon the settlement of an Other Stock-Based Award, the participant will recognize ordinary income equal to the cash and/or fair market value of the Common Shares that the participant receives, less the aggregate exercise price of the Other Stock-Based Award, if any. We generally will be entitled to a deduction equal to the income that the participant recognizes.
If the participant receives Common Shares upon the settlement of an Other Stock-Based Award and the amount the participant receives upon disposition of the Common Shares acquired upon the settlement of the Other Stock-Based Award is greater than the fair market value of the Common Shares when they were issued to the participant, the excess will be treated as a long-term or short-term capital gain, depending on whether the participant held the Common Shares for more than one year after they were issued. Conversely, if the amount the participant receives upon disposition of these Common Shares is less than the value of the Common Shares when they were issued, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the Common Shares for more than one year after they were issued.
Section 409A. Section 409A of the Code imposes certain restrictions on amounts deferred under non-qualified deferred compensation plans and a 20% additional tax on amounts that are subject to, but do not comply with, Section 409A. Section 409A includes a broad definition of non-qualified deferred compensation plans, which includes certain types of equity incentive compensation. We intend for the Awards granted under the 2018 Equity Plan to comply with or be exempt from the requirements of Section 409A and the Treasury Regulations promulgated thereunder.
Section 162(m). Section 162(m) of the Code disallows a deduction for any compensation paid to certain “covered employees” during any year in excess of $1,000,000.
New Plan Benefits
All Awards granted under the 2018 Equity Plan will be at the discretion of the Compensation Committee and, in the case of Performance-Based Awards, dependent upon the Company’s future performance. As a result, the specific number and terms of Awards that (1) will be granted to participants or (2) would have been granted to participants during the 2017 fiscal year had the 2018 Equity Plan been in place, are not determinable.
The following table provides information as of December 31, 2017 with respect to the shares of First Defiance common stock that may be issued under First Defiance’s existing equity compensation plans. As stated above, if approved by the shareholders, the 2018 Equity Plan will replace the 2010 Equity Plan, which expires by its terms on April 20, 2020. Although awards outstanding under the 2010 Equity Plan will remain in effect in accordance with their respective terms, the number of securities available for future issuance as shown below will be eliminated.
| Number of securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | ||||||||||
| Plan Category | (a) | (b) | (c) | |||||||||
| Equity Compensation Plans Approved by Security Holders | 43,200 | $ | 21.62 | 143,422 | ||||||||
PROPOSALS 4, 5, 6 AND 7
Overview of Proposals to Adopt Majority Voting Standard
In Proposals 4, 5, 6 and 7, our shareholders are being asked to approve amendments to certain provisions of our Articles of Incorporation (the “Articles of Incorporation”) and a corresponding provision in our Code of Regulations (the “Code of Regulations”) to eliminate any voting standards that require a greater than majority vote of our shareholders for approval (commonly referred to as “supermajority voting standards”). The proposed amendments, described in more detail below, will replace the remaining supermajority voting standards in our Articles of Incorporation and Code of Regulations with majority voting standards. After consideration of emerging trends among publicly traded companies and the benefits to the Company and its shareholders of adopting majority voting standards for all matters requiring shareholder approval, the Board of Directors has decided to recommend for approval by our shareholders the removal of these remaining supermajority voting standards from the Articles of Incorporation and Code of Regulations.
The following provisions of our Articles of Incorporation and Code of Regulations currently contain supermajority voting standards:
Supermajority voting standards are designed to promote stability in corporate governance by requiring broad shareholder support to effect changes. However, evolving principles of corporate governance advise that the elimination of supermajority voting standards increases the board’s accountability to shareholders and provides shareholders with greater influence over corporate governance.
Different voting standards apply to certain of the provisions proposed for amendment at the Annual Meeting and, accordingly, we have submitted each amendment as a separate item for approval of our shareholders. The voting standard applicable to each proposed amendment is set forth, respectively, in Proposals 4, 5, 6 and 7 below. Because Proposals 4 and 5 are necessarily dependent on each other in order to achieve the purposes of these Proposals, we will not implement the amendment to the supermajority voting standard for amending our Code of Regulations unless our shareholders approve both Proposals 4 and 5. Other than Proposals 4 and 5, no proposal is conditioned upon the approval of any other proposal, and each proposal will be accepted or rejected separately.
If one or more of the amendments to our Articles of Incorporation proposed in Proposals 4, 6 and 7 are approved by our shareholders, the approved amendments will become effective upon filing a Certificate of Amendment to the Articles of Incorporation with the Ohio Secretary of State immediately after the Annual Meeting; except that the amendment proposed in Proposal 4 will only be filed with the Ohio Secretary of State if the corresponding amendment to the Code of Regulations proposed in Proposal 5 is also approved by our shareholders. If Proposals 4 and 5 are both approved by our shareholders, the amendment to the Code of Regulations proposed in Proposal 5 would become effective immediately following the Annual Meeting.
If the shareholders do not approve any amendments proposed under Proposals 4, 5, 6 and 7, such amendments will not be made, and the existing provisions of the Articles of Incorporation and/or Code of Regulations, as appropriate, will remain in effect. Because Proposals 4 and 5 are conditioned on each other, neither proposal will be implemented without shareholder approval of the other.
Proposals 4 and 5: Removal of the Supermajority Voting Standard Applicable to
Amendments to the First Defiance Code of Regulations
Our Articles of Incorporation and Code of Regulations currently provide that our shareholders may repeal, alter, amend or rescind the Code of Regulations by an affirmative vote of at least two-thirds of the voting power of the Company entitled to vote on such proposal. The proposed amendment to the Articles of Incorporation under Proposal 4 and the proposed amendment to the Code of Regulations under Proposal 5 would allow our shareholders to take such action by the affirmative vote of a majority of the voting power of First Defiance entitled to vote on such proposal. Ohio law provides that a corporation’s code of regulations may be amended by the corporation’s shareholders by an affirmative vote of a majority of the voting power of said corporation, unless otherwise provided in such corporation’s code of regulations or articles of incorporation. Adopting a majority voting standard for our shareholders’ approval of amendments to the Code of Regulations would thus be consistent with the standard established by Ohio law.
Text of Proposed Amendments
The full text of the proposed amendment to Article XVI of our Articles of Incorporation and the proposed amendment to Article IX of our Code of Regulations to adopt a majority voting standard for our shareholders to repeal, alter, amend or rescind any provisions of the Company’s Code of Regulations is set forth in the attached Annex B to this Proxy Statement.
Required Vote
Approval of the amendment to Article XVI of our Articles of Incorporation, as proposed in Proposal 4, requires the affirmative vote of not less than seventy-five percent (75%) of the voting power of the Company entitled to vote thereon at the Annual Meeting. Approval of the amendment to Article IX of our Code of Regulations, as proposed in Proposal 5, requires the affirmative vote of at least two-thirds of the voting power of the Company entitled to vote thereon at the Annual Meeting. Abstentions and broker non-votes will have the effect of voting “AGAINST” Proposals 4 and 5.
Because Proposals 4 and 5 correspond to the same supermajority voting requirement, Proposals 4 and 5 must both receive shareholder approval for such proposals to be implemented following the Annual Meeting. If either Proposal 4 or Proposal 5 does not receive shareholder approval, neither proposal will be implemented.
Proposal 6: Removal of the Supermajority Voting Standard Applicable to
Amendments to the First Defiance Articles of Incorporation
Our Articles of Incorporation currently provide that our shareholders may repeal, alter, amend or rescind certain Articles of the Articles of Incorporation by an affirmative vote of not less than seventy-five percent (75%) of the voting power of the Company entitled to vote on such proposal. The specific Articles to which this supermajority voting standard apply include the following:
The proposed amendment under this Proposal 6 would allow our shareholders to amend any of the above Articles in the Articles of Incorporation by the affirmative vote of a majority of the voting power of the Company entitled to vote on such proposal. Ohio law permits a corporation to adopt a majority voting standard for approval by such corporation’s shareholders of any amendments to the above provisions of a corporation’s articles of incorporation. Amending our Articles of Incorporation to establish a majority voting standard with respect to the above provisions of the Articles of Incorporation would thus be consistent with Ohio law.
Text of Proposed Amendments
The full text of the proposed amendment to Article XVI of our Articles of Incorporation to adopt a majority voting standard for our shareholders to repeal, alter, amend or rescind Articles IV, VII, X, XI, XII, XIII, XIV, XV, XVI and XVII of the Articles of Incorporation is set forth in the attached Annex C to this Proxy Statement.
Required Vote
Approval of the amendment to Article XVI of our Articles of Incorporation, as proposed in this Proposal 6, requires the affirmative vote of not less than seventy-five percent (75%) of the voting power of the Company entitled to vote thereon at the Annual Meeting. Abstentions and broker non-votes will have the effect of voting “AGAINST” this proposal.
Proposal 7: Removal of the Supermajority Voting Standard Applicable to
Approval of Certain Business Combinations
Under this Proposal 7, our shareholders are being asked to amend Article XV of our Articles of Incorporation to adopt a majority voting standard for approval of certain business combinations identified in Article XV between the Company and a “Related Person” (as defined in Article XV), in addition to any other voting requirements imposed under applicable law or the Articles of Incorporation. Article XV of our Articles of Incorporation currently provides that approval of such business combinations requires an affirmative vote of the holders of at least eighty percent (80%) of the outstanding shares of the Company entitled to vote on such proposal. The definition of “Related Person” in Article XV generally includes a party that beneficially owns 10% or more of the Company’s common shares or an affiliate of such party. The business combinations to which this supermajority voting standard apply include, without limitation, a merger, share exchange or consolidation between the Company and the Related Person; a sale, lease, exchange, transfer or other disposition of all or any substantial part of the Company’s assets to a Related Person; the issuance of the Company’s securities to a Related Person; the Company’s acquisition of any securities of a Related Person; a reclassification of the Company’s common stock or a recapitalization involving the Company’s common stock; or an agreement, contract or other arrangement to provide for any of the foregoing.
The supermajority voting standard set forth in Article XV for approval of specified business combinations between the Company and Related Persons is imposed in addition to any other requirements under applicable law. Ohio law also establishes restrictions on certain business combinations and other transactions, including, for example, mergers, consolidations, asset sales, share acquisitions, leases, loans and mortgages, between an “issuing public corporation” and an “interested shareholder,” including a three-year moratorium on the consummation of any such business combination or transactions. Following this three-year moratorium, the issuing public corporation may enter into the business combination or transaction if certain conditions and approval requirements are met.
The restrictions imposed under Article XV of the Articles of Incorporation are intended to protect the Company against the disruptive effects of takeover attempts and to provide our shareholders a voice in approving such business combinations with Related Persons. However, in light of evolving best practices that favor an increase in shareholder participation in corporate governance, the Board of Directors has determined that the supermajority voting standard imposed on approval of certain business combinations with Related Persons under Article XV, in addition to the anti-takeover protections afforded under Ohio law, may be overly burdensome and unnecessary. To conform the Company’s corporate governance with recognized best practices and allow our shareholders more influence over approval of the specified business combinations with Related Persons, the Board of Directors has determined that elimination of the supermajority voting standard in Article XV for approval of such business combinations with Related Persons would be in the best interests of the Company and its shareholders.
Text of Proposed Amendments
The full text of the proposed amendment to Article XV of our Articles of Incorporation to permit a majority of the outstanding shares of the Company to approve the business combinations identified in Article XV between the Company and Related Persons is set forth in the attached Annex D to this Proxy Statement.
Required Vote
Approval of the amendment to Article XV of our Articles of Incorporation, as proposed in this Proposal 7, requires the affirmative vote of not less than seventy-five percent (75%) of the voting power of the Company entitled to vote thereon at the Annual Meeting. Abstentions and broker non-votes will have the effect of voting “AGAINST” this proposal.
PROPOSAL 8
Ratification of the Appointment of Crowe Horwath LLP as Our Independent Registered Public Accounting Firm for 2018
The Audit Committee has selected Crowe Horwath LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018. The Board is requesting that our shareholders ratify this selection. If our shareholders do not ratify the selection of Crowe Horwath, the Audit Committee may reconsider its selection. The Audit Committee expects that a representative from Crowe Horwath will be present at the Annual Meeting, will have an opportunity to make a statement if he or she desires, and will be available to respond to appropriate questions from shareholders.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Crowe Horwath was our independent registered public accounting firm for the fiscal years ended December 31, 2017 and 2016, and has reported on our consolidated financial statements.
Audit Fees
The following table sets forth the aggregate fees that we paid to Crowe Horwath for audit and non-audit services in 2017 and 2016. The table lists audit fees, audit related fees, tax fees and all other fees.
| Services Rendered | 2017 | 2016 | ||||||
| Audit Fees | $ | 420,500 | $ | 330,000 | ||||
| Audit-Related Fees | 40,111 | 123,601 | ||||||
| Tax Fees | 114,395 | 69,915 | ||||||
| All Other Fees | - | 2,898 | ||||||
| Total fees paid | $ | 575,006 | $ | 526,414 | ||||
Audit-related fees relate to services for acquisition services, employee benefit plan audits and the audits of the captive insurance company. Tax fees consist of fees related to the preparation of tax returns and consulting services relating to the company’s prepared tax model and low income housing tax credits.
AUDIT COMMITTEE REPORT
The Audit Committee is comprised of six directors, all of whom are considered “independent” under NASDAQ listing standards.
The Audit Committee oversees First Defiance’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal control. In fulfilling its oversight responsibilities, the Committee reviewed with management the audited financial statements in the Annual Report on Form 10-K, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Committee also reviews the effectiveness of First Defiance’s system of internal controls, including a review of the process used by management to evaluate the effectiveness of the system of internal control.
The Committee reviewed with Crowe Horwath its judgment as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed under their professional standards. The Committee received the written disclosures and the letter from Crowe Horwath required by applicable requirements of the Public Company Accounting Oversight Board regarding Crowe Horwath’s communications with the Committee concerning independence. In addition, the Committee discussed with Crowe Horwath its independence from management and the Company, including the matters required to be discussed by Auditing Standard No. 1301, and considered the compatibility of non-audit services with the auditors’ independence. The Committee also pre-approved all professional services provided to the Company by the independent registered public accounting firm.
The Committee discussed with the Company’s internal auditor and independent registered public accounting firm the overall scope and plans for their respective audits. The Committee meets with the internal auditor and independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting. The Committee held five meetings during 2017.
In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors (and the Board has approved) that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2017 for filing with the SEC. The Committee and the Board have also approved the selection of Crowe Horwath LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2018.
John Bookmyer, Chairman
Terri A. Bettinger
Jean Hubbard
Charles D. Niehaus
Samuel S. Strausbaugh
February 27, 2018
OTHER MATTERS
Each proxy confers discretionary authority on the Board to vote the proxy for the election of any person as a director if the nominee is unable to serve or for good cause will not serve, matters incident to the conduct of the meeting, and upon such other matters as may properly come before the Annual Meeting. Management is not aware of any business to come before the Annual Meeting other than those matters described in this Proxy Statement. However, if any other matters should properly come before the Annual Meeting, it is intended that the proxies solicited hereby will be voted with respect to those other matters in accordance with the judgment of the persons voting the proxies.
The Company will pay the costs of this proxy solicitation, including the standard charges and expenses of brokerage houses, voting trustees, banks, associations and other custodians, nominees and fiduciaries who are record holders of shares not beneficially owned by them, for forwarding the proxy materials to, and obtaining proxies from, the beneficial owners of our shares entitled to vote at the Annual Meeting. In addition to solicitations by mail, our directors, officers and employees may solicit proxies personally or by telephone without additional compensation for such solicitations.
What proposals are being voted on and how many votes are required for each to be approved?
| Proposal | Required Vote | Effect of Abstentions and Broker Non-Votes |
| Election of Directors | The five nominees for election as directors receiving the greatest number of votes “FOR” their election will be elected as directors. | Withheld votes will be counted for purposes of establishing a quorum but have no effect on election voting except under our Majority Vote Policy described below and on page 12. This is a non-routine proposal and broker non-votes have no effect on election voting. |
| Non-binding advisory vote on Premier’s executive compensation to our named executive officers | Affirmative vote of at least a majority of the votes cast by shareholders present, in person or by proxy, at the meeting. | Abstentions have the same effect as a vote AGAINST the proposal. This is a non-routine proposal and broker non-votes will have no effect on the proposal. |
| Ratification of the appointment of Crowe LLP as the independent registered public accounting firm for Premier for the year 2024 | Affirmative vote of at least a majority of the votes cast by shareholders present, in person or by proxy, at the meeting. | Abstentions have the same effect as a vote AGAINST the proposal. This is a routine proposal and there will not be any broker non-votes on the proposal. |
Majority Vote Policy. Our Corporate Governance Guidelines provide that in the circumstance of an uncontested director election, which is the case for this year’s directors’ election, any director who does not receive a majority of votes cast in favor of their election must promptly tender a resignation to the Board. Upon recommendation of the Governance Committee, the Board will determine whether to accept the resignation.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” EACH NOMINEE FOR | ||
GOVERNANCE AND SOCIAL MATTERS: What Matters at Premier?
We view ourselves as a high-performing, community-focused financial institution dedicated to focusing on our customers, our employees and the communities we have served since the 1890s. We are built on a foundation of focusing on the fundamentals of sound banking practices and are strengthened by our Mission & Vision Statements and Core Values initiatives described below.
Our Vision Statement encompasses our desire to be the partner of choice for all our stakeholders, be they customers, investors, employees, or the communities we serve. Our Core Values further address our commitment to our various stakeholders. Together these define our culture and the emphasis we place on building a work environment supportive of our commitment to many of the social and governance matters described below.
“Winning” for us rests on our ability to provide our products and services consistently and in compliance with all regulations and standards applicable to financial institutions of our size and the products and services we offer. To do this, we invest in our people, systems, and risk management program to create strong governance in all our dealings: from a simple deposit transaction to the functioning of our Board.
While environmental, social and governance matters have been of high importance to Premier for several years, beginning in January 2022, we specifically tasked our Governance and Nominating Committee to oversee the management of our efforts in these areas, including our efforts toward promoting diversity, equity, and inclusion.
SOCIAL
Supporting Local Communities
In 2023, through Premier Bank, our wholly-owned banking subsidiary, and the Premier Bank Foundation, we donated $1.4 million to over 470 non-profit organizations in the communities we serve. Our employees have also participated in numerous volunteer service efforts providing their time and talents to their local communities. All employees receive paid volunteer time specifically for the purpose of volunteering their time in their respective communities. In 2023, our employees recorded over 5,400 hours of volunteer time, and we believe the actual time dedicated to such efforts to be even greater than such recorded amount.
Human Capital Management
Our tagline of “Powered by People” also serves as an indication of our commitment to our employees recognizing the value and importance they each play towards our success.
| ● | Talent Acquisition - Our talent acquisition processes are designed to attract top talent in the financial services industry and to foster an inclusive, respectful, and rewarding workplace. |
| ● | Employee Retention and Engagement - All employees receive training on our Mission, Vision and Core Values. We are committed to fostering an environment that encourages diverse viewpoints, backgrounds, and experiences. With the support of our Board, we continue to explore additional diversity, equity, and inclusion efforts. We offer a comprehensive benefits package to our employees and have designed our benefits and compensation programs to attract, retain, motivate, and reward employees. |
| ● | Safety and Well-Being - Protecting our team members with good health, safety, and well-being practices is an integral part of our culture and is perhaps our most important human capital management asset. We provide robust health benefits, including medical, dental and vision, short- and long-term disability, and life insurance. |
Diversity, Equity and Inclusion
We are committed to employing and retaining a highly diverse workforce. We are an Equal Employment Opportunity Employer that understands the importance of employing individuals with varied backgrounds. Beginning with the “tone from the top” and cascading throughout our organization, we expect our employees to understand the importance of diversity, equity and inclusion and how these considerations impact our ability to achieve a highly efficient and dynamic work environment. Our “tone from the top” starts with the diversity of our executive team depicted below.
We have retained Alliance Advisors,implemented multiple programs and initiatives designed to increase diversity, equity and inclusion awareness, to build diverse teams, to encourage connections amongst all of our employees, and to support our commitment to recruiting and retaining a diverse workforce. We have also seen significant year over year improvements in the percent of minorities in our applicant pools and in our new employee ranks. Gender equity efforts have also encouraged year-over-year higher promotion rates for women compared to men and we actively manage gender pay gap disparities.
Environmental
We believe that the protection of the environment is an important part of our responsibility as a banking institution, and we are committed to doing our part to ensure a sustainable future. In 2022, we began using renewable electricity and carbon-neutral natural gas to power all of our locations. Additionally, we use LED bulbs for all lighting replacement in our facilities.
CORPORATE GOVERNANCE
Governance Highlights
We believe that sound principles of corporate governance are the hallmark of long-term growth and profitability. Our governance policies are designed to promote independent and diverse consideration of our business and risk management strategies, with the goal of achieving robust returns for our shareholders. More information about our corporate governance programs is available on our website at www.premierfincorp.com under the link “Governance Documents” where you can find copies of our Corporate Governance Guidelines, Code of Ethics, Compensation Clawback Policy, and the charters for our Board committees.
| Size of Board | 14 |
| Number of Independent Directors | 12 |
| Number of Female Directors | 3 |
| Number of Ethnically Diverse Directors | 2 |
| Average Age of Directors | 61 yrs, 10 mos |
| Average Tenure of Directors | 8 yrs |
| Director Terms | 3 yrs |
| Majority Voting Policy | Yes |
| Board Meetings Held in 2023 | 9 |
| Number of Times Independent Directors Met without Management in 2023 (excluding regular executive sessions during Board meetings) | 2 |
| Number of executive sessions without management conducted during Board meetings | 8 |
| Separate Chair and CEO | Yes |
| Lead Independent Director | Yes |
| Annual Board Evaluations | Yes |
| Annual CEO Evaluation | Yes |
| Annual Chair Evaluation | Yes |
| Board Orientation and Continuing Education Program and Guidelines | Yes |
| Codes of Ethics for Directors, Officers and Employees | Yes |
| Board Level Risk Committee | Yes |
| Audit, Compensation and Governance & Nominating Committees – all independent directors | Yes |
| Annual Review of Corporate Governance Guidelines | Yes |
| Share Ownership Guidelines for Directors and Executive Officers | Yes |
| Robust Anti-Hedging and Pledging Policies | Yes |
| Strong Recoupment (“Clawback”) Policy | Yes |
Director Independence
Our Corporate Governance Guidelines require that at least a majority of the members of the Board qualify as independent directors under applicable rules, including the independence listing standards of The Nasdaq Stock Market LLC (“Nasdaq”). Each year the Board, with the assistance of the Governance and Nominating Committee, assesses the independence of all directors and nominees with these standards and also in terms of whether these individuals have any relationships with the Company or others that could impact the exercise of their independent judgment. The Board has determined that the following directors, constituting a majority (12 of 14 directors) of the Board, are independent directors:
| Marty E. Adams | John L. Bookmyer | Charles D. Niehaus |
| Zahid Afzal | Lee Burdman | Mark A. Robison |
| Louis M. Altman | Jean A. Hubbard | Richard J. Schiraldi |
| Terri A. Bettinger | Nikki R. Lanier | Samuel S. Strausbaugh |
Directors Hileman and Small are not considered independent due to their current employment status with the Company.
Board Leadership Structure
In accordance with our Code of Regulations, the Board elects both our Chair of the Board (sometimes referred to as the “Chair”) and our Chief Executive Officer (sometimes referred to as the “CEO”), and these positions are to be separate and held by different individuals. In the event the Chair is not an independent director, our Corporate Governance Guidelines require that a “Lead Independent Director” be designated.
Mr. Hileman was appointed Executive Chair of the Board effective April 1, 2021. Mr. Schiraldi currently serves as Vice Chair of the Board and Lead Independent Director, and is an ex-officio member of every Board committee of which he is not assigned as a member. In this ex-officio capacity, Mr. Schiraldi is eligible to vote on matters at the committee meetings he attends, although he is not included for purposes of determining whether a quorum of the committee members is present.
Board Diversity
The Board believes its effectiveness is enhanced by being comprised of individuals with diverse backgrounds, skills and experience that are relevant to the role of the Board and the needs of our business, as well as diversity with respect to gender and ethnicity. Although the Governance and Nominating Committee does not have a formal diversity policy in place, it seeks to promote a diverse set of viewpoints and business experience in the Board’s membership.
On August 6, 2021, the SEC approved amendments to the Nasdaq listing rules related to board diversity. New Listing Rule 5605(f) (the “Diverse Board Representation Rule”) requires each Nasdaq-listed company, subject to certain exceptions, to (1) have at least one director who self-identifies as female, and (2) have at least one director who self-identifies as Black or African American, Hispanic or Latinx, Asian, Native American or Alaskan Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or as LGBTQ+, or (3) explain why the company does not have at least two directors on its board who self-identify in the categories listed above. While full compliance with the Diverse Board Representation Rule does not take effect until 2025, we currently satisfy this rule with three female directors, one director who self-identifies as Asian, and one director who self-identifies as Black or African American. Information concerning each director’s self-identified gender, race, and self-identification as LGBTQ+ is provided in the section entitled “Our Director Nominees and Continuing Directors” on page 20.
Assessing our Board and Director Effectiveness
Our Board and its committees regularly evaluate and discuss the performance and effectiveness of the Board and each committee. In addition, our Board performs individual and peer evaluations from time to time to delineate the skills of each director and provide directors with a confidential forum to assess and provide candid feedback regarding their own performance and the performance of fellow directors. The Board and its committees use the results of these evaluations to identify opportunities to enhance performance. These assessments and evaluations are also considered by the Governance and Nominating Committee when considering the qualifications of nominees, including incumbent nominees.
Qualifications of Director Nominees and Nominating Procedures
The Governance and Nominating Committee is tasked with evaluating nominees for election, including incumbent directors seeking reelection, and recommending nominees to the Board which in turn recommends the nominees for approval by our shareholders or appoints the nominee to the Board when a vacancy exists. In conducting its evaluation, the Governance and Nominating Committee reviews the composition of the Board to assure that the appropriate knowledge, skills and experience are represented. The Committee considers whether a nominee meets applicable independence listing standards, possesses high personal and professional ethics and integrity, has the ability to devote sufficient time to fulfilling the duties of a director, is able to read and understand basic financial statements, and will contribute diverse viewpoints and experience to the Board. Additional factors considered may include the individual’s overall experience in business and education and the individual’s particular skills, attributes or other factors considered relevant to the Company’s business or necessary or appropriate for our corporate governance needs (e.g., the need for a “financial expert” for service on the Audit Committee). In evaluating an incumbent director whose term of office is set to expire, the Committee also reviews the individual’s overall service to the Company, their attendance and participation at Board meetings, and the quality of their performance on the Board. No one individual criteria or factor is given particular weight or precedence in evaluating nominees. The Committee retains the right to modify these minimum qualifications from time to time as circumstances dictate. The Committee will comply with all applicable rules, including Nasdaq listing rules and the rules of the SEC, when considering nominations for the Board. Nominees proposed by our shareholders are evaluated in the same manner as nominees proposed by the Board and the same as incumbent directors seeking reelection.
Our Governance and Nominating Committee engages in searches for new directors to fill vacancies or to round out the experience and viewpoints on the Board. Our shareholders may also make nominations for candidates for director to the Governance and Nominating Committee, provided that notice of such nomination is given in writing to our Secretary not less than 60 days prior to the anniversary date of the immediately preceding annual meeting of shareholders. The shareholder making the nomination must promptly provide any information reasonably requested by the Governance and Nominating Committee.
No director nominations were received from shareholders for the election of directors at the Annual Meeting.
Majority Vote Policy
A plurality of votes cast is required for the election of directors. However, under our Corporate Governance Guidelines, any nominee for director in an uncontested election who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election, is required to tender his or her resignation to the Board promptly following the certification of the election results. An election will be deemed “uncontested” if the number of nominees for director does not exceed the number of directors to be elected.
The Board, acting on the recommendation of the Governance and Nominating Committee, will decide whether to accept or reject the tendered resignation within 90 days following the certification of the election results. The Governance and Nominating Committee in making its recommendation, and the Board in making its decision, may each consider any factors or other information that it considers relevant. The Board will promptly, publicly disclose its decision whether to accept or reject the tendered resignation and, if rejected, will include an explanation of the Board’s reasons for its rejection of the resignation.
Any director who tenders his or her resignation pursuant to this policy may not participate in the Governance and Nominating Committee’s recommendation or in the Board action regarding whether to accept or reject the tendered resignation. However, if a majority of the members of the Governance and Nominating Committee are required to tender resignations in accordance with the majority vote policy, then the independent directors on the Governance and Nominating Committee who are not required to tender resignations will consider the resignations and whether to accept or reject them. If a director’s tendered resignation is rejected by the Board, the director will continue to serve for the remainder of his or her term and until his or her successor is duly elected and qualified.
Board’s Role of Risk Oversight
The Board’s function of overseeing risk is handled primarily by the Board’s Risk Committee. The Chief Risk Officer works with management as well as internal and external auditors to determine and evaluate significant risks that we may be taking and communicates those findings directly to the Risk Committee. The Risk Committee provides oversight related to identifying, quantifying, minimizing, and managing our risks. The Risk Committee believes that by involving both management and auditors in this important process, it is best able to perform its oversight function. The Company, typically in conjunction with Premier Bank, also has the following standing management-level committees: Enterprise Risk Management, Operational Risk, Compliance, Information Security, Asset Liability, Loan, Special Assets, CRA & Fair Lending, and Change Advisory that meet regularly to provide governance structure and input into our risk management process. These committees provide information and support to the Risk Committee.
Board’s Role in Strategic Planning
Our Board has the legal responsibility for overseeing our affairs and, thus, an obligation to keep informed about our business and strategies. This involvement enables the Board to provide guidance to management in formulating and developing plans and to exercise independently its decision-making authority on matters of importance to us. Acting as a full Board and through its standing committees, the Board is fully involved in our strategic planning process.
Each year, typically in September, senior management and the Board hold an extended meeting to focus on corporate strategy. This session involves presentations from management and input from the directors regarding the assumptions, priorities and strategies that will form the basis for management’s operating plan and strategy for the coming year. At subsequent meetings, the Board continues to review our progress against the strategic plan and to exercise oversight and decision-making authority regarding strategic areas of importance and revise the strategic plan, as necessary. The role the Board plays is inextricably linked to the development and review of our strategic plan. Through these efforts, the Board, consistent with good corporate governance practices, encourages our long-term success by exercising sound and independent business judgment on the strategic issues that are important to our business.
Board Meetings
Our Board holds two regularly scheduled meetings each quarter, with an additional regularly scheduled meeting during the first quarter. Special meetings of the boards are held from time to time, as needed. There were nine meetings of the Board held during 2023. The independent directors of Premier also met twice in 2023, in addition to the full Board meetings and regular executive sessions of the Board. All of our directors attended at least 75% of the total number of meetings of the full Board. All directors that serve on a committee of the Board attended at least 75% of the total number of meetings of each such committee.
Neither the Board nor the Governance and Nominating Committee has implemented a formal policy regarding director attendance at our annual shareholder meetings.
Non-management directors met nine times in executive session in 2023 in addition to the two independent director meetings described above.
Director Onboarding and Board Education Guidelines
Premier provides robust onboarding for new directors and ongoing education and training opportunities for all Board members on matters to support the effectiveness of our directors in their responsibilities. Training topics have included director fiduciary duties, analyst perspectives on the financial industry, cybersecurity, digital product developments in the industry, and regulatory compliance items. Additionally, all Board members are expected to participate in relevant external director education opportunities at least once every three years.
Communication with Directors
Any shareholder wishing to do so may write to the Board at our principal business address—601 Clinton St., Defiance, Ohio 43512. Any shareholder communication so addressed will be delivered unopened to the director or a member of the group of directors to whom it is addressed, or to the Chair if addressed to the “Board.”
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines as a framework to assist the Board in exercising its responsibilities. These Guidelines address expectations of the Board in performing its duties and reflect its ongoing efforts to enhance its effectiveness and corporate governance. These Guidelines will be periodically reviewed and modified as deemed appropriate by the Board. The Corporate Governance Guidelines can be found on the Company’s website at www.premierfincorp.com.
Compensation-Related Governance
Information concerning additional governance policies and procedures relating to our compensation of executive officers, including our share ownership guidelines, anti-hedging policy and clawback policy, may be found in the section titled “Compensation Related Governance and Policies” beginning on page 43.
Board Committees
The Board has five standing committees: Audit, Compensation, Executive, Governance and Nominating, Risk, and Technology. Charters for each of Audit, Compensation, Governance and Nominating, and Risk committees are posted on our website at www.premierfincorp.com. Each committee reviews and assesses its charter each year, with the Governance and Nominating Committee reviewing all committee charters before recommending them to the full Board for approval. Each of our board committees functions as a joint committee on behalf of both Premier and Premier Bank.
Name | Independent | Audit | Compensation | Executive | Governance & Nominating | Risk | Technology |
| Director Nominees | |||||||
| Marty E. Adams | ✓ | ✓Chair | ✓ | ✓ | |||
| Donald P. Hileman | ✓ Chair | ✓ | ✓ | ||||
| Nikki R. Lanier | ✓ | ✓ | ✓ | ||||
| Gary M. Small | ✓ | ✓ | |||||
| Samuel S. Strausbaugh | ✓ | ✓ Chair | ✓ | ||||
| Continuing Directors | |||||||
| Zahid Afzal | ✓ | ✓ | ✓ Co-Chair | ||||
| Louis M. Altman | ✓ | ✓ | ✓ | ||||
| Terri A. Bettinger | ✓ | ✓ | ✓ | ✓ Co-Chair | |||
| John L. Bookmyer | ✓ | ✓ | ✓ | ✓ | ✓ | ||
| Lee Burdman | ✓ | ✓ | ✓ | ||||
| Jean A. Hubbard | ✓ | ✓ | ✓ | ||||
| Charles D. Niehaus | ✓ | ✓ | ✓ Chair | ||||
| Mark A. Robison | ✓ | ✓ | ✓ | ||||
| Richard J. Schiraldi | ✓ | ✓ | ✓ | ✓ Chair |
Audit Committee
| Members: | Samuel S. Strausbaugh, Chair Louis M. Altman, John L. Bookmyer, Mark A. Robison, Richard J. Schiraldi |
| Meetings in 2023: | 6 |
The Audit Committee is established to oversee all material aspects of the Company’s accounting and financial reporting processes and the audits of the financial statements of the Company. The Committee focuses on the qualitative aspects of financial reporting to shareholders and on the Company processes for the management of business/financial risk and for compliance with applicable legal, ethical, and regulatory requirements. The Audit Committee is responsible for:
| ● | the appointment of our independent registered public accounting firm; |
| ● | review of the external audit plan and the results of the auditing engagement; |
| ● | the appointment of our internal audit firm; |
| ● | review of the internal audit plan and results of the internal audits; |
| ● | review of the effectiveness of our system of internal control, including review of the process used by management to evaluate the effectiveness of the system of internal control; and |
| ● | oversight of our accounting and financial reporting practices. |
The Board has determined that Directors Bookmyer, Robison, Schiraldi, and Strausbaugh each have the attributes listed in the definition of “audit committee financial expert” set forth in Item 407(d)(5)(ii) of Regulation S-K and in the Nasdaq listing rules. The Board has further determined that all members of the Audit Committee are “independent” for purposes of Nasdaq listing rules and meet Nasdaq standards for financial sophistication.
Compensation Committee
| Members: | Marty E. Adams, Chair Terri A. Bettinger, John L. Bookmyer, Lee Burdman, Jean A. Hubbard, Nikki R. Lanier, Mark A. Robison (as of October 2023) |
| Meetings in 2023: | 5 |
The Compensation Committee is responsible for approving the compensation to our executive officers and overseeing our compensation programs and benefit plans. The Committee is also responsible for:
| ● | assessing director compensation for service on the Board and committees, and recommending changes to director compensation to the full Board for approval; |
| ● | establishing the CEO’s annual goals, participating in the annual evaluation of the CEO, and approving the compensation paid to the CEO; |
| ● | overseeing the performance evaluation of the other executive officers subject to Rule 16a-1(f) of the Securities Exchange Act of 1934 and approving the compensation paid to these officers; |
| ● | establishing and reviewing compliance with share ownership guidelines for directors and officers; |
| ● | identifying the peer group to be used for benchmarking the Company’s compensation programs; |
| ● | overseeing the administration of and awards under the Company’s equity-based plans, long-term incentive plans, and short-term incentive plans; |
| ● | assessing the independence of the compensation consultant retained by the Committee; |
| ● | overseeing the Company’s human resource related strategies and policies; and |
| ● | performing the Boards obligations as “plan sponsor” under the 401(k) Employee Savings Plan of the Company. |
The Board has determined that all of the Compensation Committee members are considered “independent” for purposes of the Nasdaq listing rules, are “non-employee directors” for purposes of Rule 16b-3 of the Exchange Act, and are “outside directors” under of Section 162(m) of the Internal Revenue Code. The Committee regularly uses the services of an independent executive compensation consulting firm to fulfill its responsibilities for evaluating and establishing the compensation program for the Company’s executive officers and directors.
Governance and Nominating Committee
| Members: | Richard J. Schiraldi, Chair Marty E. Adams, Louis M. Altman (as of October 2023), John L. Bookmyer, Jean A. Hubbard, Charles D. Niehaus |
| Meetings in 2023: | 4 |
The Governance and Nominating Committee is responsible for ensuring that the Board is appropriately constituted and for developing and overseeing the Company’s corporate governance policies and guidelines. The Committee is responsible for:
| ● | ensuring that the members of the Board collectively possess the appropriate mix of knowledge, skills and experience required to ensure that our business succeeds; |
| ● | establishing the procedures for director nominations and the evaluation criteria for all relevant candidates; |
| ● | assessing the independence of all directors and nominees for election as directors; |
| ● | monitoring the Board’s continuing education and self-assessment process; |
| ● | conducting periodic assessments of the Board and Board committees; |
| ● | oversight of the Company’s Code of Ethics and Corporate Governance Guidelines and the review of conflict of interest matters and related party transactions; |
| ● | maintaining both an emergency succession plan and a long-range succession plan for the CEO and other key management positions; and |
| ● | Oversight of the Company’s strategies concerning environmental, social and governance related matters. |
All of the Governance and Nominating Committee members are considered “independent” for purposes of the Nasdaq listing rules.
Risk Committee
| Members: | Charles D. Niehaus, Chair Zahid Afzal, Terri A. Bettinger, Lee Burdman, Donald P. Hileman, Nikki R. Lanier, Gary M. Small |
| Meetings in 2023: | 4 |
The Risk Committee establishes the risk appetite of the Company in consideration of the levels and types of risk the Company is able and willing to assume in its exposures and material business activities. The Committee considers the Company’s strategic and business objectives and responsibilities to its shareholders and other key stakeholders, including but not limited the communities in which the Company operates, its customers, and its employees. The Committee also considers the Company’s obligations to operate in compliance with applicable law and safe and sound banking practices. The Committee’s responsibilities also include:
| ● | oversight of the Company’s enterprise risk governance framework that manages the following risk categories: credit, interest rate, liquidity, market, operational, compliance, legal, reputation, strategic, and other risks considered to be emerging risks; |
| ● | monitoring the Company’s performance to ensure alignment with the risk appetite statement; and |
| ● | Oversight of the Company’s enterprise wide risk framework. |
A majority of the members of the Risk Committee are considered “independent” for purposes of the Nasdaq listing rules.
Technology Committee
| Members: | Zahid Afzal and Terri A. Bettinger, Co-Chairs Donald P. Hileman |
| Meetings in 2023: | 3 |
The Board formed the Technology Committee in late 2023 as a new joint committee of Premier and Premier Bank. While a formal committee charter is still being finalized, the Committee’s purpose is to:
| ● | validate and advocate for technology planning and investment strategies that align with overall Company strategy and provide oversight of management’s implementation of technology strategy; |
| ● | assist the Risk Committee in technology, data/information management, and cyber risk oversight; and |
| ● | assist the Board and management in the assessment of current and anticipated trends in technology relating to financial products, product delivery, operations, data, and security. |
Executive Committee
| Members: | Donald P. Hileman, Chair Marty E. Adam, John L. Bookmyer, Richard J. Schiraldi, Gary M. Small, Samuel S. Strausbaugh |
| Meetings in 2023: | The Executive Committee held regular meetings in 2023 |
The Executive Committee generally has the power and authority to act on behalf of the Board between scheduled meetings unless specific Board action is required or unless otherwise restricted by our Articles of Incorporation or Code of Regulations or by action of the Board. There is no specific charter document for the Executive Committee.
Related Person Transactions
The Board and the Governance and Nominating Committee review and approve all transactions and payments involving the directors and executive officers, or involving their related persons or immediate family members, that occur in a given fiscal year. No related person transactions were identified in 2023 that require disclosure in this Proxy Statement. Transactions with related persons of certain independent directors were identified and reviewed by the Governance and Nominating Committee, but none of these transactions were determined to affect the ability of such directors to exercise their independent judgment while serving on the Board or any Board committees due to the minimal values involved.
Premier Bank has, and expects to have in the future, banking relationships in the ordinary course of business with directors, executive officers, and their affiliates on the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with others. In June 2023, First Insurance Group of the Midwest, Inc. (“First Insurance Group“) sold substantially all of its assets to Risk Strategies Group and discontinued active operations as an insurance agency. Prior to the sale of its assets, First Insurance Group had insurance agent relationships in the ordinary course of business with directors, executive officers, and their affiliates on terms comparable to transactions with third parties. Normal, arms-length banking or insurance relationships entered into in the ordinary course of business and consistent with applicable federal banking or other regulations are not considered to interfere with a director’s independence. Service specialization, rate concessions, fee concessions, or other services or product modifications may similarly be offered to directors and executive officers and their affiliates if the same would be offered to other similarly situated clients on a non-discriminatory basis in the ordinary course of business. All loans or extensions of credit to a director or officer, or their related interests (as defined by Regulation O of the Federal Reserve), (1) were made in compliance with Regulation O of the Federal Reserve, (2) were made in the ordinary course of business, (3) were made on substantially the same terms, including interest rates and nature of collateral, as those prevailing at the time for comparable transactions with other persons not related to the Company, and (4) did not involve more than the normal risk of collectability or present other unfavorable features.
PROPOSAL 1 – ELECTION OF DIRECTORS
COMPOSITION OF THE BOARD
Premier’s Board consists of 14 directors and is divided into three classes, with two classes having five members and one class having four members. The directors are elected by class to serve a three-year term. The terms of the three classes expire at successive annual meetings so that the shareholders elect one class of directors at each annual meeting. Each of the directors of Premier is also a director of Premier Bank.
| Class II – Terms expiring at the 2024 Annual Meeting: | Marty E. Adams Donald P. Hileman Nikki R. Lanier Gary M. Small Samuel S. Strausbaugh |
| Class III – Terms expiring at the 2025 Annual Meeting: | Zahid Afzal Louis M. Altman Terri A. Bettinger John L. Bookmyer |
| Class I – Terms expiring at the 2026 Annual Meeting: | Lee Burdman Jean A. Hubbard Charles D. Niehaus Mark A. Robison Richard J. Schiraldi |
NOMINATION OF DIRECTOR CANDIDATES
We will elect five directors at the Annual Meeting. The director nominees standing for election at the Annual Meeting are Mr. Adams, Mr. Hileman, Ms. Lanier, Mr. Small, and Mr. Strausbaugh. The nominees elected to the Board at the Annual Meeting will serve until our annual meeting in 2027 and until each such person’s successor is duly elected and qualified. If any of the five nominees should become unable or unwilling to stand for election at the Annual Meeting, the persons named on the proxy solicitingcard as proxies may vote for other person(s) selected by the Board. We have no reason to believe that any of the director nominees for election named in this Proposal 1 will be unable or unwilling to serve in such capacity. Each director nominee has consented to act as a director if elected.
The Board has determined that Mr. Adams, Ms. Lanier, and Mr. Strausbaugh are “independent” under Nasdaq listing rules. Mr. Hileman and Mr. Small are not independent directors due to their current employment relationships with the Company.
YOUR BOARD RECOMMENDS THAT YOU | ||
OUR DIRECTOR NOMINEES AND CONTINUING DIRECTORS
Demographic Information
The following table summarizes certain self-identified characteristics of our directors, which have not changed since Premier disclosed the information in our proxy statement for the 2023 annual meeting of shareholders,1 in accordance with Nasdaq Listing Rules 5605(f) and 5606. Each term used in the table has the meaning given to it in the rule and related instructions.
Board Diversity Matrix (as of March 1, 2024) | ||||
| Total Number of Directors | 14 | |||
| Part I: Gender Identity | Female | Male | Non-Binary | Did Not Disclose |
| Directors | 3 | 11 | -- | -- |
| Part II: Demographic Background | ||||
| African American or Black | 1 | -- | -- | -- |
| Alaskan Native or American Indian | -- | -- | -- | -- |
| Asian | -- | 1 | -- | -- |
| Hispanic or Latinx | -- | -- | -- | -- |
| Native Hawaiian or Pacific Islander | -- | -- | -- | -- |
| White | 2 | 10 | -- | -- |
| Two or More Races or Ethnicities | -- | -- | -- | -- |
| LGBTQ+ | -- | |||
| Did Not Disclose Demographic Background | -- | |||
1 To see Premier’s Board Diversity as of February 28, 2023, please see Premier’s proxy statement filed with the SEC on March 13, 2023.
Director Skills and Experience
The varying individual skills and experience of our directors allow the Board to apply different knowledge-bases and consider diverse perspectives in the performance of the Board’s oversight responsibilities. The following table represents the key skills our Board deems valuable or relevant for our business and the number of directors assessed as possessing these skills through our Board assessment process. Individual directors may have additional attributes, skills, or experience that are considered important but not reflected below. Additionally, the Board values the collective effect the individual diversity of attributes, skills, and experience of directors has in Board discussions and decision-making resulting in a more effective board.
| Skill/Experience | # of Directors |
| Risk Management - Experience with reviewing or managing risk in a large organization, providing oversight of the company’s risk management framework | 12 |
| Cybersecurity - Experience in information security data, privacy, and cybersecurity | 2 |
| Technology - Experience in use of technology to facilitate business operations and customer service | 3 |
| Audit - Experience working as an auditor, internally or externally | 6 |
| Financial/Accounting - Experience as an accountant or other relevant experience in accounting and financial reporting | 9 |
| Regulations - Experience in governmental and regulatory affairs and/or through positions with government organizations and regulatory bodies | 7 |
| Operations - Experience in managing multiple departments of high-level professionals who are overseeing the day-to-day operations of the business | 9 |
| M&A - Experience leading complex mergers, acquisitions, or divestitures and direct involvement in the integration of people, systems, data and operations | 11 |
| Banking - Experience in one or more of the Company’s specific financial services areas, including retail banking, wealth and investment management | 11 |
| Legal - Experience through a law degree and as a practicing attorney in understanding legal risks and obligations | 3 |
| Human Resources - Experience in managing employee benefits, employee hiring and onboarding, performance management and HR records | 3 |
| CEO - Experience in an executive leadership position demonstrating the ability to understand and direct business operations, analyze risk, manage human capital, oversee implementation of organizational change and deliver strategic plans | 8 |
| CFO - Experience in an executive leadership position demonstrating the ability to understand finance reporting structures and internal controls to ensure accuracy and transparency in reporting | 6 |
| Public Company - Experience as officer, director or consultant to public company other than PFC | 7 |
| DEI/ESG - Experience in developing, managing, or overseeing sustainability or governance practices, or diversity, equity and inclusion programs | 3 |
| Nominees for Election at this Annual Meeting: | |
Marty E. Adams Director Since: 2020 Age: 71 Committees: Compensation (Chair) Governance & Nominating Executive | Since 2008, Mr. Adams has been the President of Marty Adams Consulting, LLC, where he serves as both an advisor to banks and their boards of directors and to private equity firms pertaining to bank equity investments. He is also the managing member of Strategic Value Bank Partners, LLC since 2015. Mr. Adams is presently a Director of First National Bank of America, East Lansing, Michigan (2016), and of FineMark Holdings, Inc. and FineMark National Bank & Trust, Fort Myers, Florida (October 2021). He served as the interim chief executive officer of PVF Capital Corp. and Park View Federal Savings Bank, Solon, Ohio, and as president and chief operating officer of Huntington Bancshares Inc. following Huntington’s acquisition of Sky Financial Group, Inc. from July 2007 until December 2007. Mr. Adams was previously the chairman and chief executive officer of Sky Financial Group and Sky Bank. Mr. Adams served on the boards of United Community Financial Corp. and Home Savings Bank from February 2013 through January 2020. Mr. Adams’ skills and qualifications that he has developed through more than 45 years of experience in the banking and financial services industries, as well as his service in significant public company leadership positions, enable him to contribute technical knowledge to the Board in nearly all operational areas of banking. |
Donald P. Hileman Executive Chair Director Since: 2013 Age: 71 Committees: Executive (Chair) Risk Technology | Mr. Hileman is the Executive Chairman of Premier and Premier Bank since April 1, 2021. He previously served as the CEO of Premier from January 2014 through March 2021; CEO of Premier Bank from January 2015 through March 2021; President of Premier from January 2014 through January 2020; President of Premier Bank from 2015 to March 2019; Executive Vice President and Chief Financial Officer of Premier and Premier Bank from 2009 through 2013; Interim Chief Financial Officer from October 2008 to March 2009; and CEO of First Insurance Group of the Midwest from 2007 until April 1, 2021. He has worked in the financial services industry for more than 40 years. Mr. Hileman is also a Trustee of Defiance College. Mr. Hileman brings valuable experience and expertise to the Board from his work within financial institutions, as well as his knowledge and familiarity with Premier and its subsidiaries. Mr. Hileman also serves on the Trust Committee of Premier Bank. |
Nikki R. Lanier Director Since: 2022 Age: 53 Committees: Compensation Risk | Ms. Lanier is the founder and Chief Executive Officer of Harper Slade, a racial equality advisory firm that began operations January 1, 2022. Prior to forming Harper Slade, she was the Senior Vice President and Site General Manager of the Federal Reserve Bank of St. Louis (Louisville, Kentucky Branch) from October 2014 through December 2021. Ms. Lanier is an adjunct MBA professor at the University of Louisville College of Business and a member of its Board of Advisors. She also serves as chair of the board of One West, a Louisville based community development corporation, and as secretary and audit committee chair of the Louisville Regional Airport Authority board. With a background as a labor and employment attorney, Ms. Lanier brings valuable experience and expertise to the Board regarding diversity, equity and inclusion considerations and human capital matters. Her experience in a variety of industries including banking, manufacturing, education and healthcare, both in the public and private sectors, is expected to provide additional beneficial perspective to the Board. |
Gary M. Small Director Since: 2020 Age: 63 Committees: Executive Risk | Mr. Small is the CEO and President of Premier and Premier Bank (since April 2021) and President of Premier and Premier Bank (since February 2020). He has served on the Board of Directors and as the CEO of First Insurance Group since February 2020 and continues in that role following the sale of substantially all the assets of First Insurance Group in June 2023. Mr. Small was the President, Chief Executive Officer and a director of UCFC and Home Savings from March 2014 through January 2020. He previously held executive leadership roles in other financial institutions including as the Senior Executive Vice President and Chief Banking Officer for S&T Bank; Senior Vice President of Customer Operations and Chief Operating Officer for Jackson Hewitt Tax Services; Executive Vice President and Regional Banking Group President for Huntington National Bank; Executive Vice President and Head of Regional Banking for Sky Financial Group; and over 20 years in a number of senior operating and financial roles with National City Corporation and its predecessor Merchants National Corporation, including four years as Executive Vice President and Retail Network Executive with responsibility for over 200 branch locations across the Midwest. With over 35 years of banking and finance experience, Mr. Small provides the Board with invaluable knowledge regarding financial institutions. Mr. Small also serves on the Trust Committee of Premier Bank. |
Samuel S. Strausbaugh Director Since: 2006 Age: 60 Committees: Audit (Chair) Executive | Mr. Strausbaugh is President of Elpis Opportunity Fund L.P., a Private Equity Investment Fund based in Indianapolis, IN, since October 2020. He served as President and CEO of Vrsus Assets, LLC, a digital case management platform firm for plaintiff attorneys, from June 2018 through October 2020. Mr. Strausbaugh has also served as the president or chief executive officer of several other business entities in the past. He presently serves as director of Keller Logistics, a logistics and trucking firm in Defiance, Ohio, since 2018. Mr. Strausbaugh has important tactical and strategic skills that he has developed in management and executive positions with his prior employers. His experience with a growing company helps to inform the Board of Directors when considering future business opportunities. |
| Continuing Directors with Terms Expiring at the 2025 Annual Meeting: | |
Zahid Afzal Director Since: 2020 Age: 61 Committees: Risk Technology | Mr. Afzal is a member of the Board of Directors of Buckeye Insurance Group, Piqua, Ohio since December 2019. He previously served as the Chief Operating Officer at Home Savings Bank from March 2018 to January 2020. Prior to joining Home Savings, Mr. Afzal served as executive vice president, Chief Technology and Operations Executive at Capital Bank in Raleigh, North Carolina from 2013 to November 2017. From March 2006 until February 2013, he was the Senior Executive Vice President, Chief Information Officer and Chief Operating Officer of Huntington National Bank. He also served in various management and leadership positions for Bank of America and Citicorp. Mr. Afzal has served on several boards of directors, including those of Bancsource (April 2015 to June 2021), RoamHR (June 2019 to December 2021), Bitglass (January 2012 to November 2021), Banksight, Bowling Green State University College of Business Board of Advisors (August 2006 to August 2013), Ohio Foundation of Independent Colleges, and Groundwork Group. Mr. Afzal has expertise that will contribute to the Board, including banking, technology, operations, and marketing experience. Mr. Afzal also serves on the Trust Committee of Premier Bank. |
Louis M. Altman Director Since: 2020 Age: 55 Committees: Audit Governance & Nominating | Mr. Altman is a co-managing partner of the Altman Company, a full service real estate development firm for commercial, multi-family, office, medical and hotel properties located in multiple states. He has over 30 years of experience in managing, developing and financing commercial real estate ventures. Mr. Altman served as the chairman of Premier Bank and Trust from 2015 until the bank’s sale to Home Savings Bank in 2017 and as a director of Ohio Legacy Corp. from February 2010 to January 2018. He also previously served on the board of directors of Sky Bank. Mr. Altman served on the boards of United Community Financial Corp. and Home Savings Bank from February 2017 through January 2020. Since April 2020, Mr. Altman also serves on the board of the Akron Children’s Hospital Foundation. The attributes, skills and qualifications developed by Mr. Altman through his role as a director of financial institutions over the past 15 years and his broad experience in real estate development benefit the Board in his unique insight in the areas of financing, property management, acquisition, business development and leadership. Mr. Altman also serves on the Trust Committee of Premier Bank. |
Terri A. Bettinger Director Since: 2018 Age: 56 Committees: Compensation Risk Technology | Ms. Bettinger is the Deputy Director and Chief Information Officer for the Ohio Department of Aging since May 2019 and sits on Ohio’s Technology First Taskforce. She is also the president and owner of VCIO Services, LLC, an executive consulting company in Columbus, Ohio since June of 2017. Ms. Bettinger served as the Chief Information Officer of Franklin County Data Center in Columbus, Ohio from February 2015 to October 2017. She also led North America Fund Services Technology for the Global Financial Services Group at Citigroup Inc. from April 2009 to February 2015. Ms. Bettinger presently serves and as an executive advisory board member for Ohio Women in Technology. Ms. Bettinger spent 20 years in the banking and financial services industry, and her successful career in the delivery of valuable technology solutions provides beneficial knowledge to the Board in the areas of technological cybersecurity and technology growth and innovation. |
John L. Bookmyer Director Since: 2005 Age: 59 Committees: Audit Compensation Executive Governance & Nominating | Mr. Bookmyer is the Chief Executive Officer of Pain Management Group located in Findlay, Ohio since January 2009. He also served as the Chief Operating Officer of Blanchard Valley Health System in Findlay, Ohio, from August 1995 until December 2008. Mr. Bookmyer is an inactive Certified Public Accountant in Ohio and has extensive experience in oversight, leadership and financial matters from his roles at all entities. He is also very familiar with the needs of the region through his interactions with community hospitals and businesses. |
| Continuing Directors with Terms Expiring at the 2026 Annual Meeting: | |
Lee Burdman Director Since: 2020 Age: 60 Committees: Compensation Risk | Mr. Burdman is Co-Founder and Managing Partner of Redstone Investments, a development, management and acquisitions company focused on shopping center development, headquartered in Youngstown, OH since 1991. He also serves on the board of directors of SIMCO Management Corp., a residential apartment management firm operating in northeast Ohio and northwest Pennsylvania, since 2003. He served on the boards of United Community Financial Corp. and Home Savings Bank from April 2011 through January 2020. Mr. Burdman contributes to the Board through his more than 30 years of experience and expertise in owning, managing and developing real estate, commercial real estate lending, financial literacy and executive management. |
Jean A. Hubbard Director Since: 2008 Age: 65 Committees: Compensation Governance & Nominating | Ms. Hubbard served as the Corporate Treasurer and Business Manager of The Hubbard Company, a printing and office supply company located in Defiance, Ohio, from 2003 through May 20, 2022. She previously held various positions in the financial industry. Ms. Hubbard offers financial and business expertise through her work as corporate treasurer. Ms. Hubbard also provides the Board with insight regarding employee and human resource issues from her experience at Rurban Financial Corp. Ms. Hubbard also serves as Chair of the Trust Committee of Premier Bank. |
Charles D. Niehaus Director Since: 2014 Age: 64 Committees: Risk (Chair) Governance & Nominating | Mr. Niehaus is the managing partner of Niehaus.Law, Ltd., Attorneys at Law, in Toledo, Ohio, since 2007. Mr. Niehaus has provided legal representation to corporate and business clients for over 35 years on a wide range of business issues including the representation of financial institutions in formation, acquisitions, bank litigation, shareholder matters and regulatory compliance. He brings extensive experience in the legal and financial services areas and provides valuable guidance and insight with respect to strategy and compliance. Mr. Niehaus also serves on the Trust Committee of Premier Bank. |
Mark A. Robison Director Since: 2018 Age: 59 Committees: Audit Compensation | Mr. Robison is President of Brotherhood Mutual Insurance Company headquartered in Fort Wayne, Indiana, since 2007 and Chairman of the Board of Brotherhood Mutual since 2009. Prior to his promotion to President of Brotherhood Mutual Insurance Company, Mr. Robison served in various positions at Brotherhood Mutual since 1994, including as Vice President of Finance. As a successful leader of a national company, Mr. Robison adds valuable leadership experience to the Board. |
Richard J. Schiraldi Vice Chair and Lead Independent Director Director Since: 2020 Age: 69 Committees: Governance & Nominating (Chair) Audit Executive | Mr. Schiraldi is retired from Cohen & Company CPAs as a CPA/JD after 36 years of servicing closely held businesses and entrepreneurs on a wide variety of business and tax issues. He also serves as director of the Youngstown State University Foundation since 2010. He has served as Vice Chair of Premier since February 2020. Mr. Schiraldi was the Chairman of the Board of Directors of United Community Financial Corp. and Home Savings Bank from 2011 through January 2020 and served on both of these Boards as director beginning in 2002. Mr. Schiraldi’s skills and qualifications developed by Mr. Schiraldi throughout his years as a CPA, as well as his experience as the owner and manager of privately held businesses and director of numerous not-for-profit entities enable him to contribute significant insight to the Board in the areas of strategic planning, tax, accounting and financial, local community affairs and leadership. |
Director Compensation
The table below provides compensationinformation concerning Mr. Hileman, who is a current employee of the Company, and our non-employee directors for the fiscal year ended December 31, 2023. Employee directors are not paid any additional amounts for Board service. Compensation information for Mr. Small is included in the Executive Compensation section beginning on page 31.
| Director | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | All Other Compensation ($) | Total ($) |
| Adams, Marty E. | $48,750 | $35,006 | -- | $83,756 |
| Afzal, Zahid | $46,087 | $35,006 | -- | $81,093 |
| Altman, Louis M. | $46,062 | $35,006 | -- | $81,068 |
| Bettinger, Terri A. (2) | $46,934 | $35,006 | -- | $81,940 |
| Bookmyer, John L. | $51,250 | $35,006 | -- | $86,256 |
| Burdman, Lee | $45,000 | $35,006 | -- | $80,006 |
| Hileman, Donald P. (3) | -- | -- | $176,348 | $176,348 |
| Hubbard, Jean A. | $46,750 | $35,006 | -- | $81,756 |
| Lanier, Nikki R. | $45,000 | $35,006 | -- | $80,006 |
| Niehaus, Charles D. (2) | $50,202 | $35,006 | -- | $85,208 |
| Robison, Mark A. (2) | $45,991 | $35,006 | -- | $80,997 |
| Schiraldi, Richard J. | $62,500 | $35,006 | -- | $97,506 |
| Strausbaugh, Samuel S. | $50,000 | $35,006 | -- | $85,006 |
(1) | In 2023, each non-employee director was granted an award of restricted shares as of the date of the 2023 Annual Shareholder Meeting. The dollar amounts reported for such awards in this column represent the aggregate grant date fair value of the shares granted to each non-employee computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 (“FASB ASC Topic 718”) using the closing price of PFC common stock on the award date. |
| (2) | Ms. Bettinger, Mr. Niehaus and Mr. Robison elected to receive stock-in-lieu of cash payments totaling $23,222, $50,202, and $6,891, respectively. |
| (3) | The dollar amount shown as “All Other Compensation” for Mr. Hileman includes the following compensation, perquisites, and personal benefits: employee salary of $150,000; Company 401(k) contributions of $6,000; life insurance with a value of $9,680; insurance premiums of $6,675; and country club dues of $3,993. |
Each non-employee director received an annual retainer of $70,000 in 2023. Mr. Schiraldi, as Vice Chair, received an additional retainer of $12,500. The Company pays directors $35,000 of the annual retainer in Premier shares. Directors receive additional retainers in connection with their service on Board committees, the Trust Committee of Premier Bank, or on the Board of First Insurance Group (on which independent directors served over the course of 2023 while the entity was actively operating) as described in the following table. While all our directors serve on the Board of Premier Bank, the directors do not receive separate compensation in connection with this service.
| 2023 Board Committee Retainers | ||
| Committee | Chair Retainer ($) | Member Retainer ($) |
| Audit | 15,000 | 7,500 |
| Compensation | 10,000 | 5,000 |
| Risk | 10,000 | 5,000 |
| Governance & Nominating | 7,500 | 3,750 |
| Technology(1) | 3,350 | -- |
| Trust | 3,000 | 1,500 |
| First Insurance Group | 3,000 | 1,500 |
| (1) | The retainer reflected above for the Technology Committee is the annualized retainer amount. The Committee members only received a portion of this retainer in 2023 as the Committee was established mid-year. The independent directors on the Technology Committee both serve as co-chairs and no separate member retainer amount was set for 2023. |
Besides the portion of the retainer paid in Premier shares, the Company allows individual directors to elect to receive all or any part of the balance of their director compensation in either cash or stock. Our directors may also defer all or any part of their cash retainer payable to them under the Premier Financial Corp. Deferred Compensation Plan further described on page 47. The returns on the amounts deferred are dependent on the investment elections made by the director.
No non-employee director received perquisites or personal benefits with an aggregate value exceeding $10,000.
The Board has set stock ownership guidelines for the Board and executive management in the Corporate Governance Guidelines. The guideline for each Board member is ownership equal to a value of five times the annual retainer payable in Premier shares. The Board prohibits directors from engaging in transactions that could reduce the extent to which their investment in Premier’s shares is aligned with the interests of shareholders. As a result, our Corporate Governance Guidelines prohibit directors from entering into speculative transactions involving our shares, including any hedging, short sales, puts, calls, swaps, forward contracts, or other derivative securities.
EXECUTIVE OFFICERS
The following individuals serve as the current executive officers of Premier, other than Mr. Hileman and Mr. Small whose information is set forth above.
Kathy Bushway Senior Vice President, Chief Marketing Officer (since June 2020) Age: 64 | Kathy Bushway joined Premier as part of the United Community Financial Corp. (Home Savings Bank) merger in 2020. She leads a team of professionals in brand management, marketing, product management, digital banking, and analytics. Prior to her current role, she was Director of Marketing for Home Savings Bank from September 2016 until June 2020. Ms. Bushway served as Senior Vice President, Marketing & Communications Director and various other positions with Huntington National Bank (formerly FirstMerit Corporation) from September 2004 to September 2016. She has also held various marketing roles at Society (Key) Bank, Bank One (Chase) and a publishing company. |
Varun Chandhok Executive Vice President, Chief Information Officer and Operations Officer (since October 2021) Age: 52 | Prior to his current role, Mr. Chandhok was Chief Information Officer from March 2021 through October 2021. Prior to joining Premier, Mr. Chandhok served as Chief Information Officer – Corporate, Risk Regulatory and Finance from October 2019 to March 2021 and as Chief Information Officer – Corporate and Chief Architect from February 2014 to October 2019 of M&T Bank. |
Sharon L. Davis Executive Vice President, Chief Human Resources Officer (since January 2020) Age: 42 | Prior to her current role, Ms. Davis was Director of Human Resources of Premier and Premier Bank from November 2015 to January 2020. Prior to joining Premier, Ms. Davis was Senior Vice President and Human Resources Director at First Community Bank from October 2007 to November 2015. Prior to that, she served as an Assistant Vice President, Senior Human Resources Business Partner for BBVA Compass. |
Jason L. Gendics Executive Vice President, Retail and Business Banking (since January 2020) Age: 53 | Prior to his current role, Mr. Gendics was Executive Vice President, Head of Consumer and Business Banking for Home Savings Bank from May 2019 until its merger with Premier Bank in January 2020. Prior to that time, Mr. Gendics was Senior Vice President, Home Lending Region Manager for Huntington Bank from 2016 to April 2019. |
John Houpt Executive Vice President, Chief Credit Officer (since May 2023) Age: 52 | Mr. Houpt joined Premier Bank in 2022 as Deputy Chief Credit Officer. Prior to joining Premier Bank, he was Market Credit Leader for the Ohio commercial banking group of Wells Fargo Bank since 2011. |
Rick L. Hull Executive Vice President, Head of Commercial Banking (since April 2023) Age: 71 | Prior to his current role, Mr. Hull was employed by Premier Bank as an Executive Vice President and Market President from 2020 until March 2023. He previously was employed at Home Savings Bank as an Executive Vice President and Market President form 2017-to 2020. |
Shannon M. Kuhl Executive Vice President, Chief Legal Officer (since March 2021) Age: 53 | Prior to her current role, Ms. Kuhl was a member of Frost Brown Todd LLC, a law firm, from May 2019 through February 2021. Previously, Ms. Kuhl was with First Financial Bancorp and First Financial Bank, Cincinnati, Ohio, where she served in various positions since 2006, including Chief Risk Officer from November 2017 until November 2018, Chief Legal Officer from October 2013 until April 2018, and Chief Compliance Officer from September 2016 until November 2017. |
Paul D. Nungester Executive Vice President and Chief Financial Officer (since April 2019) Age: 50 | Prior to his current role, Mr. Nungester was Executive Vice President, Director of Finance and Accounting from July 2018 to April 2019. Prior to joining Premier, Mr. Nungester worked at Welltower Inc., a real estate investment trust, where he served in various positions since 2001: Senior Vice President and Controller from January 2012 to May 2018; Vice President and Controller from March 2006 to January 2012; and Controller from September 2002 to March 2006. |
Dennis E. Rose, Jr. Executive Vice President and Chief Strategy Officer (since October 2021) Age: 55 | Prior to his current role, Mr. Rose served as Chief Operations Officer from January 2020 through October 2021, Director of Strategy Management from January 2017 to January 2020, Executive Vice President, Head of Business Banking from October 2013 to December 2016, and Executive Vice President, Chief Operations Officer from 2001 to 2013. Mr. Rose joined Premier Bank in 1996 and served as Corporate Controller until 2001. |
Jennifer Scroggs Senior Vice President, Wealth Management Director (since January 2020) Age: 46 | Prior to her current role, Ms. Scroggs served as the Senior Vice President, Director of Trust and Chief Trust Fiduciary Officer from January 2020 through June 2021 for Premier Bank. Ms. Scroggs joined Premier Bank in January 2017 as Vice President, Senior Trust Fiduciary Officer. Prior to joining Premier Bank, Ms. Scroggs served as a Trust Officer and Vice President, Senior Trust Officer for Fifth Third Bank from 2006 to 2017. |
Tina M. Shaver Executive Vice President, Chief Risk Officer (since November 2020) Age: 56 | Prior to joining Premier, Ms. Shaver served as Senior Director and Deputy Chief Compliance & Ethics Officer of Treliant, LLC in Washington D.C., where she provided consultative guidance to financial institutions on enterprise risk matters from September 2016 to October 2020. Prior to that, she served as Senior Vice President & Chief Compliance Officer of FirstMerit Bank, N.A. in Akron, Ohio, from October 2004 to August 2016. |
PROPOSAL 2 - NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION
Pursuant to Section 14A and Section 14a-21 of the Exchange Act, our shareholders have an opportunity to approve, in a non-binding advisory vote, the compensation of our named executive officers (“NEOs”) as disclosed in this Proxy Statement. Our NEOs are those individuals included in the Summary Compensation Table on page 44 in this Proxy Statement. The compensation being approved is the compensation required to be disclosed in this Proxy Statement by the rules of the SEC, including the compensation described in the Compensation Discussion and Analysis, accompanying tables and any related material disclosed in this Proxy Statement.
The Board has structured our executive compensation program with the following objectives in mind: compensation should be directly linked to corporate operating performance, and all officers should receive fair and equitable compensation for their respective levels of responsibility and supervisory authority compared to their peers within the Company as well as their peers within the financial services industry. The Board urges you to read the “Compensation Discussion and Analysis” starting on page 31 of this Proxy Statement and the related compensation tables and narrative through page 42.
The Board is asking you to approve the following resolution, which will be submitted for a shareholder vote at the Annual Meeting:
“Resolved, that the shareholders approve the compensation of Premier’s named executive officers as named in the Summary Compensation Table of the Company’s 2024 Proxy Statement, as described in the ‘Compensation Discussion and Analysis’, the compensation tables and the related disclosure contained on pages 31- 57 in the Proxy Statement.”
Because your vote is advisory, it will not be binding upon the Board or the Company, overrule any decision made by the Board, or create or imply any additional fiduciary duty by the Board. The Compensation Committee may, however, take into account the outcome of the vote when considering future executive compensation arrangements.
YOUR BOARD RECOMMENDS THAT YOU | ||
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis (“CD&A”) provides a detailed description of our executive compensation philosophy and programs, the compensation decisions the Compensation Committee (the “Committee”) has made under those programs, and the factors considered in making those decisions. This CD&A focuses on the compensation of our NEOs, as identified in the Summary Compensation Table below.
2023 Performance Summary
Our goal is to continue to be a high-performing community-focused financial institution, meeting or exceeding the 75th percentile of our peers in key financial measures. Compensation is a key component of attracting talent to our organization that will enable us to reach this goal.
As of December 31, 2023, the Company had assets of approximately $8.6 billion. Highlights from fiscal 2023 include:
| ● | Loan growth of approximately $278.8 million or 4.3%; |
| ● | Deposit growth of approximately $236.3 million or 3.4%; |
| ● | Equity growth of $87.9 million or 9.9%; and |
| ● | Completed sale of insurance agency at a significant gain that strengthened capital without diluting future earnings. |
For the three-year period ending December 31, 2023, our cumulative growth in earnings per share was 78%. Our performance was driven by three-year average return on assets of 1.43%, and our successful execution of our organic and acquisition growth strategies. By emphasizing growth opportunities in our metro markets, our three-year compounded average growth rate in total assets was 6%.
Compensation Philosophy and Objectives
The Board believes the most effective executive compensation program is one that rewards the achievement of specific annual, long-term, and strategic goals that are established in conjunction with strategic planning initiatives and the long-term objective of maximizing shareholder value. The Board believes that a significant amount of executive compensation should be performance-based because it aligns with shareholder interests, enables the attraction and retention of executive talent, balances risk with rewards, and supports the long-term performance goals of the Company. We have created opportunities for the NEOs, other Section 16 officers, and certain other employees to earn short-term and long-term incentive compensation in the form of cash and equity in the Company based on the level of achievement of performance goals that the Committee establishes each year.
The Committee evaluates our executive compensation program to ensure that it is sufficiently competitive to enable us to attract and retain qualified employees in key positions. Total compensation commensurate with a range around mid-point compensation paid to similarly situated executives of peer companies, both overall and by component, is generally what the Committee considers competitive. The Committee considers multiple factors such as experience, leadership ability, and breadth of responsibility in setting or adjusting compensation on an individual basis.
The Board encourages ownership of PFC shares by executive management in order to align the Company’s compensation philosophy with the interests of shareholders, which is why a significant part of each NEO’s compensation package is paid in equity, particularly associated with the Long Term Incentive Plan.
Executive Compensation Program Practices and Risk Management Perspectives
The Committee believes the Company has designed its executive compensation program and implemented several compensation practices to balance and control unnecessary or excessive risk-taking and encourage sound management of the Company.
| ✓ | Mix of compensation elements (short- and long-term, fixed and variable) with a significant percentage of total compensation based on performance | ✓ | Compensation Committee retains management, oversight, and discretion on short-term and long-term incentive plan payouts, including the ability to reduce or eliminate any plan or payout |
| ✓ | Executive short-term and long-term incentive plan corporate performance certified by Committee | ✓ | Incentive plans require minimum threshold performance for corporate components with payouts capped at 150% of target |
| ✓ | Performance metrics positioned to encourage performance relative to budget and strategic initiatives | ✓ | Multi-year vesting on long-term awards with awards payable in Company shares |
| ✓ | Compensation Committee comprised of only independent directors | ✓ | Share Ownership Guidelines for executive officers and nonemployee directors |
| ✓ | Engagement of independent compensation consultant | ✓ | Periodic risk assessment of incentive plans |
| ✓ | Clawback policy | ✓ | Anti-hedging and pledging policy |
| ✓ | Double trigger change in control agreements and equity award agreements | ✓ | Employment and severance/change in controls with strong protective covenants concerning non-solicitation and confidentiality |
Risk Review and Assessment
In 2022, Pearl Meyer & Partners, LLC (“Pearl Meyer”) was engaged to conduct a risk assessment of all incentive compensation plans, including the short-term incentive plan and the long-term incentive plan as well as line-of-business incentive plans. Pearl Meyer reviewed each plan for design and governance considerations and determined they do not encourage excessive risk-taking.
Compensation Decision Making
Role of the Compensation Committee in Compensation Decisions - The Compensation Committee makes all compensation-related decisions for the Company’s Section 16 officers, including the NEOs. The Committee’s responsibilities include:
| ● | Assessing the adequacy and suitability of the compensation for the Company’s Section 16 officers in consideration of the Company’s goals and performance, the competitive hiring market, and sound corporate governance practices; |
| ● | Setting individual-specific compensation for the CEO, NEOs, and other Section 16 officers; |
| ● | Considering and approving the overall design of the Company’s executive officer compensation program, compensation components, and compensation–related policies and governance; |
| ● | Defining potential payments to Section 16 officers in various termination scenarios and in connection with a change in control; |
| ● | Overseeing the evaluation of all Section 16 officers and establishing the CEOs annual goals and objectives; |
| ● | Identifying the members of the Company’s peer group for compensation purposes; |
| ● | Periodically reviewing the Company’s incentive compensation practices in consideration of the Company's risk management objectives and the relationship between compensation and risk; and |
| ● | Assessing the adequacy and suitability of the director compensation program and recommending changes to the full Board for approval. |
In performing its duties, the Committee considers peer group and industry related information concerning compensation programs and practices, the advice of expert compensation consultants, and management prepared reports and recommendations. The most recent full-scope competitive market analysis of the Company’s executive compensation program was prepared by Pearl Meyer at the direction of the Committee in 2023 to ensure the compensation program was properly aligned with the Company’s compensation philosophy and appropriate for the size and activities of the Company.
Role of Management in Compensation Decisions - The CEO and other members of management assist the Compensation Committee in its responsibilities and regularly attend Committee meetings though they do not attend or participate in any discussions relating to their individual compensation or evaluations. This assistance includes:
| ● | Providing recommendations with respect to compensation programs and practices; | |
| ● | Providing financial and performance data to the Committee and making recommendation concerning performance measures and goals; and | |
| ● | CEO provided evaluations of and recommendations concerning the compensation for the Section 16 officers. |
Role of the Compensation Consultant - The Compensation Committee has the authority to engage a compensation consultant or other advisors to provide information and recommendations to the Committee. Since 2020, the Committee has engaged Pearl Meyer to assist in identifying the Company’s compensation peer group, provide peer and industry executive compensation related data, identify peer and industry compensation trends, and provide other services as requested. The engagement of Pearl Meyer is assessed annually and the firm was again retained in 2023, and in 2024, for these purposes. Pearl Meyer reports directly to the Compensation Committee and serves at the discretion of the Committee. The Committee has the sole authority to appoint, compensate and oversee Pearl Meyer, including responsibility for evaluating Pearl Meyer’s independence and establishing its fees and retention terms. In retaining Pearl Meyer for 2023, the Committee assessed Pearl Meyer’s independence pursuant to the applicable rules of the SEC and Nasdaq and determined that Pearl Meyer’s services for the Compensation Committee did not raise any conflict of interest that would impair Pearl Meyer’s independence.
Peer Group - A peer group is identified by the Compensation Committee each year with the assistance and recommendation of Pearl Meyer. The compensation practices of the peer group are reviewed to assist in evaluating the appropriateness of the compensation of our NEOs and Section 16 officers, and to evaluate the relative performance measures for the long-term incentive compensation payable under the Company’s Long-Term Incentive Program. The 2023 peer group consists of 18 financial institutions that are similar in size and general business model to the Company, and that are located in the Midwest. There are no changes in the 2023 peer group compared to 2022, and no changes to the peer group were made for purposes of 2024. The 2023 peer group consists of the following financial institutions:
| ● | 1st Source Corporation., IN (SRCE) | ● | Midland States Bancorp, Inc., IL (MSBI) | |
| ● | City Holding Company., WV (CHCO) | ● | MidWestOne Financial Group, Inc. IA (MOFG) | |
| ● | Enterprise Financial Services Corp., MO (EFSC) | ● | Northwest Bancshares, Inc., OH (NWBI) | |
| ● | First Busey Corporation., Chicago, IL (BUSE) | ● | Park National Corporation., OH (PRK) | |
| ● | First Commonwealth Financial Corp., PA (FCF) | ● | Peoples Bancorp Inc., OH (PEBO) | |
| ● | German American Bancorp, Inc., IN (GABC) | ● | QCR Holdings, Inc., IL (QCRH) | |
| ● | Great Southern Bancorp, Inc., MO (GSBC) | ● | Republic Bancorp, Inc., KY (RBCA.A) | |
| ● | Horizon Bancorp, Inc., IN (HBNC) | ● | S & T Bancorp, Inc., PA (STBA) | |
| ● | Lakeland Financial Corporation., IN (LKFN) | ● | Univest Financial Corporation., PA (UVSP) |
Advisory Vote on Executive Compensation - At both our 2023 and 2022 annual meetings, our shareholders approved our executive compensation with more than 94% and 96%, respectively, of the votes cast being cast in favor, indicating that shareholders strongly support our executive compensation program. The Compensation Committee viewed the results of this advisory vote as an indication that our shareholders generally support our executive compensation program. While important, the vote was only one of several factors influencing our executive compensation decisions for the 2023 fiscal year. The Committee will continue to monitor shareholder approval levels going forward. At our 2019 annual meeting, our shareholders approved holding annual votes on our executive compensation.
Shareholder Engagement - In 2023, executive management participated in several key virtual investor conferences throughout the year, including the Piper Sandler East Coast Financial Services Conference, the KBW Community Bank Investor Conference and the Raymond James U.S. Bank and Banking on Tech Conference. During these various conferences and communications with investors, no concerns regarding our executive compensation philosophy or programs were raised.
The feedback provided by our shareholders through the advisory vote, in addition to investor feedback we receive through the Company’s shareholder engagement throughout the year, provides invaluable information to the Board and the Committee. Because of the value that we place on investor feedback, the Company strives to maintain open communication with its shareholders, including through participation at investor conferences.
Executive Compensation Components
The Compensation Committee has designed the compensation packages to its executive officers to reward and encourage performance supporting both the long-term and short-term goals of the Company. The principal components of compensation for our NEOs in 2023 are described below.
Base Salary - We provide our NEOs and other employees with a base salary to compensate them for services rendered during the fiscal year. The base salary for each of the NEOs is generally determined at the beginning of the year. Base salaries for NEOs other than the CEO are determined based upon recommendations made by the CEO.
Short-Term Cash Incentive Compensation - Short-term incentive compensation to the NEOs and other executive officers is administered under a short-term incentive plan (the “Short-Term Incentive Plan”). Under the Short-Term Incentive Plan, the Committee approves target awards for executive officers based on a percentage of the officer’s base salary. The target award is further delineated with a portion attributable to the satisfaction of certain corporate performance goals and a portion attributable to the individual’s personal performance goals.
For the corporate component, the Committee establishes a threshold, target and maximum payout based upon the level of achievement of respective performance goals. If the threshold performance level is not achieved, the payout percentage for that component of the award is zero. If the performance level for a component is between threshold and target, or between the target and maximum, the payout percentage is prorated based upon linear interpolation. The individual performance goals are established in consideration of the Board’s and management’s expectations for the year and weighted for each officer based on the officer’s role within the Company.
The performance period considered for purposes of determining short-term incentive compensation begins on January 1 and ends on December 31 of the same year. At the end of the performance period, the Compensation Committee determines the level of achievement of the corporate performance goals. The Committee also evaluates and determines the level of attainment by the CEO of the CEO’s individual performance goals, and reviews the annual assessment of the other NEOs and other Section 16 officers completed by the CEO. The Committee approves the actual short-term incentive awards payable to the CEO, other NEOs, and other Section 16 officers based on these assessments and the level of attainment of the corporate performance goals. Short-term incentive awards are payable in cash following the end of the performance period.
Long-Term Equity Incentive Compensation - The Committee may also grant long-term incentive compensation awards under the Long Term Incentive Program to its executive officers, including the NEOs. In 2023, awards under the Long Term Incentive Program were issued in the form of performance share units and restricted stock under the Company’s Amended and Restated 2018 Equity Incentive Plan.
Performance Share Units (“PSUs”) - A PSU award is designed to align an individual’s compensation with the long-term success of the Company based upon the achievement of certain performance measures at the end of the performance period. The performance period and performance measures are both identified at the time of grant. The performance period for PSU awards is three years beginning on January 1 of the year of grant through December 31 at the close of the three-year performance period. A “target” award is identified at the time of grant determined as a percentage of the executive’s base salary translated into PSUs based upon the Company’s average stock price for the twenty (20) trading days prior to the effective date of the grant.
The Committee establishes a threshold, target and maximum payout based upon the level of achievement of respective performance goals. If the threshold performance level is not achieved, the payout percentage for that component of the award is zero. If the performance level for a component is between threshold and target, or between the target and maximum, the payout percentage is prorated based upon linear interpolation.
If the performance measures identified in the grant are satisfied, the PSU award will vest and be converted to shares of common stock of the Company based on the level of performance achieved. The actual number of common shares that the executive earns at the end of the performance period will be determined by the Committee based on the level of achievement of the performance measures and the executive’s average base salary over the performance period. All determinations of whether the performance measures have been achieved, any adjustments attributed to changes in average base salary, the actual award earned by the executive, and all other matters related to a PSU award will be made by the Committee in its sole discretion.
In addition to the issuance of common shares to the executive upon certification of performance by the Committee, the executive receives dividend equivalents equal to the dividends on the common shares underlying the PSUs, if any, paid by the Company prior to the date the Committee determines the performance measure level of attainment.
Restricted Stock Awards (“RSAs”) - The Committee also uses non-performance based long-term equity incentive compensation in the form of RSAs as another method to align the individual’s interests with the long-term performance of the Company and increase employee ownership of shares. RSAs are frequently considered for the purpose of attracting and retaining talented personnel. There are no performance based measures associated with an RSA. RSAs are issued as current shares of PFC when granted but are subject to possible forfeiture and certain restrictions such as non-transferability, until they vest according to the stated schedule. Premier allows holders of RSAs to vote the shares and to receive dividends, if and when paid, on the shares prior to vesting. RSAs issued by the Company vest after defined periods of time equal to at least one year following the date of grant, and may cliff vest or vest in portions over stated periods.
Retirement Benefits - All of our employees, including the NEOs, are eligible to participate in the Premier Financial Corp 401(k) Employee Savings Plan (the “401(k) Savings Plan”). The 401(k) Savings Plan is a tax-qualified retirement savings plan pursuant to which all employees are able to contribute up to the limit prescribed by the Internal Revenue Service to the 401(k) Savings Plan on a before-tax basis. We maintain a safe harbor plan that matches 100% of the first 3% of pay that is contributed to the 401(k) Savings Plan plus 50% of the salary deferrals between 3% and 5% of compensation. All employee and Company contributions to the 401(k) Savings Plan are fully vested upon contribution.
In addition, the NEOs and other executives are eligible to participate in the Premier Financial Corp. Deferred Compensation Plan (the “Premier DCP”), which allows the deferral of up to 80% of a participant’s salary and up to 100% of short-term incentive compensation. A group of senior officers, including the NEOs, also are eligible to receive a restoration benefit under the Premier DCP which provides for matching contributions in excess of the 401(k) Savings Plan caps. Investment options within the Premier DCP do not provide any guaranteed or enhanced investment returns. The Premier DCP is discussed in further detail below under the heading “Nonqualified Deferred Compensation” beginning on page 47.
Employee Share Purchase Plan - All of our employees, including the NEOs, are eligible to participate in the Premier Financial Corp. Employee Share Purchase Plan (the “ESPP”). The ESPP is a means for all employees to purchase PFC shares at the current market price at the time of purchase through regular payroll deductions. We contribute an amount equal to 15% of each of the participating employee’s actual payroll deductions up to $150 per month. The employee specifies the amount to be withheld from their pay with a minimum of $30 per month and a maximum of $5,000 per month.
Insurance Plans - Our NEOs are eligible to participate in the Company’s general medical, dental, and vision insurance plans on the same basis as other employees.
The NEOs are also eligible to participate in the Company’s group term life and disability insurance program on the same basis as other employees which provides a benefit in the event of the death of the employee of two times the employee’s annual salary up to a maximum of $800,000. In addition to the group term life insurance, our NEOs, as well as other key employees, also receive benefits from Company purchased split dollar bank-owned life insurance. As of December 31, 2023, Mr. Small’s potential benefit was $895,253 under the split dollar bank-owned life insurance in addition to $800,000 benefit under the group term life insurance. The potential benefit to the other NEOs is one times the individual’s annual salary, in addition to the group term insurance benefit. The Company also provides additional life and supplemental disability insurance benefits to Mr. Small.
Perquisites and Other Personal Benefits - We provide our NEOs with perquisites and other personal benefits that the Committee believes are reasonable and consistent with our overall compensation program to better enable us to attract and retain executive talent. The Committee periodically reviews the levels of perquisites and other personal benefits.
Each NEO is eligible, upon relocation, to receive reimbursement for certain reasonable expenses associated with the costs of such relocation. On a case by case basis, the Company considers reimbursement requests for country club and other social organization membership for its senior officers, including the NEOs, for certain business purposes.
Employment and Severance and Change in Control Agreements - We have employment or change of control agreements with certain key employees, including the NEOs. These agreements include provisions for severance payments upon a change of control and are designed to promote stability and continuity of senior management. These agreements each include important protections to the Company, including, but not limited to, provisions restricting competition or the solicitation of proxiesCompany customers and employees and the requirement that the executive sign a release of claims before receiving any of the severance or change in control benefits outlined in the agreement. Information regarding applicable payments under such agreements for the NEOs is provided under the heading “Potential Payments Upon Termination or Change in Control” below.
2023 Executive Compensation Determinations
Base Salary - In 2021, Pearl Meyer conducted a market analysis of compensation, using available peer and industry index compensation data and surveys, for purposes of NEO and other executive officer salary and compensation adjustments in 2022 and 2023.
In making a recommendation for 2023 salaries for the other NEOs, the CEO compared the base salary levels of the other NEOs with Pearl Meyer’s market analysis and also consulted with Pearl Meyer regarding median executive compensation levels of the peer group. In light of these considerations, Mr. Small recommended salary increases for 2023 for the other NEOs ranging from 4.0% to 8.6%. After evaluating a number of factors, including performance evaluations, the individual executive’s skills, competencies and experience, and the importance of each executive’s role to the Company, the Committee approved the CEO’s recommendations, all of which were effective January 1, 2023. The Committee approved a salary increase of 4.0% for Mr. Small effective April 1, 2023. Separately, effective March 1, 2023, Mr. Hull received an additional 5.0% salary increase in connection with his promotion to Head of Commercial Banking.
2023 Short-Term Incentive Compensation - The 2023 Short-Term Incentive Plan corporate performance goals, the associated threshold, target and maximum payout levels, and actual performance levels are detailed in the following table:
| Award Component | Threshold (50% Payout) | Target (100% Payout) | Maximum (150% Payout) | Actual Performance | Adjusted Payout Percentage (4) |
| Net Income | $99,976,260 | $105,238,168 | $110,500,076 | $111,294,907 | 0% |
| PTPP Income (1) | $137,821,956 | $145,075,743 | $152,329,530 | $144,978,184 | 0% |
| Efficiency Ratio | 56.24% | 53.74% | 51.24% | 52.89% | 0% |
| Average Loan Growth (2) | 10.64% | 12.96% | 15.29% | 13.88% | 120% |
| Average Deposit Growth (3) | 4.05% | 4.94% | 5.83% | 2.12% | 0% |
(1) Represents pre-tax pre-provision income. (2) Average loan growth represents growth in average balances including loans held for sale but excluding PPP compared to 2022. (3) Average deposit growth represents growth in average balances excluding brokered deposits compared to 2022. (4) Net income, PTPP income and efficiency ratio adjusted to exclude the impact of insurance agency disposition. | |||||
The Company’s actual performance under the 2023 Short-Term Incentive Plan goals shown above resulted in a blended payout of 98% for the corporate components. The Committee reviewed various information when evaluating the Company’s actual results against the originally defined corporate goals under the Short-Term Incentive Plan, including information regarding (1) the impact of the insurance agency disposition, (2) the Company’s credit quality, and (3) the external environment for interest rates and the residential mortgage secondary market. The Committee also discussed the Company’s quality of earnings and the impact management’s actions had on the outcome for 2023. Additional consideration was given to the overall execution by management of the operating plan against the approved 2023 budget. The Committee concluded that adjustments would be made to exclude the impact of the insurance agency sale for net income, PTPP income and efficiency ratio resulting in an adjusted blended payout of 21%.
In addition to the corporate performance goals, a portion of each 2023 short-term incentive award is attributable to the satisfaction of individual performance goals for each of the NEOs. Each participant’s individual component award is based on their performance against specific business objectives and initiatives falling under their direct responsibility over the course of the year. The payout received with respect to this individual component cannot exceed 150% of the award opportunity. The final individual component payouts for 2023 were (1) 90% for Mr. Small, (2) 100% for Mr. Nungester, (3) 110% for Mr. Hull, (4) 125% for Mr. Chandhok, and (5) 120% for Ms. Kuhl.
The weighting of the corporate performance goals and the individual performance goal component for each executive officer is determined at the beginning of the performance period. The relative weighting of the goals for each participating NEO in 2023 was:
| Short Term Incentive Award Component | Gary Small | Paul Nungester | Rick Hull | Varun Chandhok | Shannon Kuhl |
| Net Income | 18.75% | 17.50% | 12.50% | 12.50% | 17.50% |
| PTPP Income | 16.88% | 15.75% | 11.25% | 11.25% | 15.75% |
| Efficiency Ratio | 11.25% | 10.50% | 7.50% | 7.50% | 10.50% |
| Average Loan Growth | 13.12% | 12.25% | 8.75% | 8.75% | 12.25% |
| Average Deposit Growth | 15.00% | 14.00% | 10.00% | 10.00% | 14.00% |
| Individual Goals | 25.00% | 30.00% | 50.00% | 50.00% | 30.00% |
| Total | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% |
The 2023 target short-term incentive compensation component and actual bonus payout as approved by the Committee for the participating NEOs is set forth below:
| 2023 Target Bonus Potential and Awards | |||
| Executive Officer | Target (as a % of Base Salary) | Target ($) | Actual Payout ($) |
| Gary Small | 50.0% | 312,000 | 119,340 |
| Paul Nungester | 35.0% | 131,250 | 58,669 |
| Rick Hull | 30.0% | 133,678 | 87,559 |
| Varun Chandhok | 35.0% | 112,476 | 82,107 |
| Shannon Kuhl | 25.0% | 72,306 | 36,659 |
In addition to the above payouts under the 2023 Short-Term Incentive Plan, Mr. Nungester and Ms. Kuhl received one-time cash bonuses of $50,000 and $30,000, respectively, in consideration of their individual efforts in connection with the insurance agency sale.
2023 Long-Term Incentive Compensation - In the first quarter of 2023, the Committee established long-term incentive compensation awards for certain executives, including all of the NEOs. To better align the long-term incentive plan mix of compensation with peer practices and to provide the executive officers with a more predictable form of long-term incentive compensation, the Committee identified a total award for each executive consisting of RSAs (equal in value to one-third of the total award) and PSUs (equal in value to two-thirds of the total award).
Restricted Stock Awards – With respect to the RSAs, the Company entered into a Restricted Stock Award Agreement with each of the NEOs. The number of RSAs granted was calculated by taking one-third of the maximum incentive payout dollar value for each executive and dividing it by the Company’s closing stock price immediately prior to the grant date. The RSAs vest in one-third increments over a three-year period and will be fully vested in February 2026.
Performance Share Units - With respect to the PSUs, the Company entered into a Performance Share Units Award Agreement with each of the NEOs. The PSUs have a three-year performance period ending December 31, 2025. The number of PSUs granted was calculated by taking two-thirds of the maximum incentive payout dollar value for each executive and dividing it by the Company’s average stock price for the 20 trading days prior to the approval of PSUs by the Committee, which was $25.58 for all except Mr. Small who was $25.01.
With respect to the PSU awards granted in 2023, the table below sets forth the two performance measures, their respective weighting, and the goals for threshold performance, target performance and superior performance. Achievement of the threshold performance goal will result in 50% of the target payout, achievement of the target performance goal will result in 100% of target payout for the respective measure, and achievement of the superior performance goal will result in 150% of the target payout for the measure.
| Performance Goals | ||||
| Performance Measure | Weight | Threshold | Target | Superior |
| 3-year Average Core ROA | 50% | 25th %ile | 50th %ile | 75th %ile |
| 3-year Total Shareholder Return (rTSR) | 50% | 25th %ile | 50th %ile | 75th %ile |
| Payout for Performance Level (% of Target Opportunity): | 50% | 100% | 150% | |
The 2023-2025 PSU long-term incentive compensation award target for each of the participating NEOs is set forth below.
| Bonus Potential Dollar Amount(1) | ||||
| Executive Officer | Target as % of Base Salary | Threshold ($) | Target ($) | Maximum ($) |
| Gary Small | 50% | $106,121 | $212,242 | $318,363 |
| Paul Nungester | 35% | $45,076 | $90,151 | $135,227 |
| Rick Hull | 20% | $22,773 | $45,545 | $68,318 |
| Varun Chandhok | 35% | $38,628 | $77,256 | $115,884 |
| Shannon Kuhl | 25% | $24,832 | $49,665 | $74,497 |
| (1) The dollar amount of the Threshold award is based on the number of shares determined by multiplying base salary by 50% of the target percentage of base salary divided by the average stock price noted above. The dollar amount of the Target award potential is based on the number of shares determined by multiplying the base salary by the target percentage of base salary divided by the average stock price noted above. The dollar amount of the Maximum award is based on the number of shares determined by multiplying the base salary by 150% of the target percentage of base salary divided by the average stock price noted above. The actual award will be adjusted as a result of the amount of the executive’s average base salary over the performance period. | ||||
Other Long Term Incentive Compensation - In 2023, the Committee approved a special RSA award equal to 3,985 shares, vesting annually over three years, to Ms. Kuhl.
2024 Executive Compensation Determinations
In the first quarter of 2024, the Compensation Committee met to consider the compensation program for 2024. The Committee considered the Company’s 2023 performance, certain economic and market pressures that are expected to be present in 2024, peer data concerning the mix and structure of compensation, recommendations from executive management, the roles and contributions of the executive officers, and the Company’s compensation philosophy. Based on this review, the Committee approved the following changes to the compensation program for 2024.
Base Salaries - Salary increases for the NEOs, excluding Mr. Small, ranging from 3% to 9% were approved effective January 1, 2024. A salary increase for Mr. Small of 3% effective April 1, 2024 was approved.
Short-Term Incentive Plan - While the corporate performance measures remained the same as 2023, with annual adjustments to the threshold, target and maximum levels of performance, the Committee determined that the following changes to the weightings of the corporate performance goals were appropriate:
| Corporate Performance Measure | 2023 Weighting | 2024 Weighting |
| Net Income | 25.00% | 25.00% |
| PTPP Income (1) | 22.50% | 22.50% |
| Efficiency Ratio | 15.00% | 15.00% |
| Average Loan Growth (2) | 17.50% | 15.00% |
| Average Deposit Growth (3) | 20.00% | 22.50% |
| Total | 100% | 100% |
Beginning in 2022, the Committee decided to eliminate any payout under the Short-Term Incentive Plan in the event a participant terminates their employment for “good reason” outside of a change in control scenario, and change the payout from full to pro-rated in the event of the death or disability of the participant. Individual NEOs may receive short-term incentive based severance payments in the event of certain “good reason” terminations as described in the section entitled “Potential Payments upon Termination or Change In Control” beginning on page 48.
Long-Term Incentive Plan – The Committee again decided to grant awards under the Long-Term Incentive Plan such that one-third of the annual award will be granted in the form of RSAs while two-thirds will be in the form of PSUs. The performance goals and weightings for the Long-Term Incentive Plan for 2024 will remain the same as those applied in 2024.
In February 2024, the Committee also approved a special RSA award equal to 5,147 shares, vesting in full at the expiration of three years, to Mr. Chandhok.
Tax Implications
Section 162(m) of the Internal Revenue Code generally prohibits us from claiming a deduction on our federal income tax return for compensation in excess of $1,000,000 paid in a given fiscal year to certain current and former executive officers. While the Committee carefully considers the net cost and value to Premier of maintaining the deductibility of all compensation, it also desires the flexibility to reward NEOs and other key employees in a manner that enhances Premier’s ability to attract and retain individuals, as well as to create longer-term value for shareholders. Thus, income tax deductibility is only one of several factors the Committee considers in making decisions regarding Premier’s compensation program.
The Board has not adopted a formal policy regarding tax deductibility of compensation paid to our executive officers. The Board may authorize compensation that might not be deductible and may modify compensation that was initially intended to be exempt from Section 162(m) if it determines that such compensation decisions are in the best interests of the Company and its shareholders.
Compensation Related Governance and Policies
Share Ownership Guidelines - We believe that our NEOs and nonemployee directors should have and maintain a significant equity interest in the Company to align their interests with the interests of our shareholders and promote a long-term perspective in the success of the Company. The Committee has established the following share ownership guidelines for executives and nonemployee directors as follows:
| CEO and President | 3 times base salary | ||
| CFO and Chief Lending Officer | 2 times base salary | ||
| All other Executive Officers | 1.5 times base salary | ||
| Nonemployee Directors | 5 times the annual retainer |
Anti-Hedging Policy - Executive officers are prohibited from engaging in transactions that could reduce the extent to which their investment in Premier’s shares is aligned with the interests of shareholders. As a result, our Corporate Governance Guidelines and Insider Trading Policy prohibit executive officers from entering into speculative transactions involving our shares, including any hedging, short sales, puts, calls, swaps, forward contracts, or other derivative securities.
Clawback Policy for Incentive Compensation - The Board has adopted an incentive compensation clawback policy providing for a three-year review period of the Company’s reported results to ensure that incentive compensation for all executive officers (including the NEOs) is based on accurate financial and operating data and the correct calculations of the attainment of performance goals. The policy allows the Company to recover incentive awards previously paid or awarded. A copy of this policy is posted on the Company’s website at www.premierfincorp.com under the link “Governance Documents.”
Compensation Committee Interlocks and Insider Participation - Directors Adams, Afzal (through October 2023), Bettinger, Bookmyer, Burdman, Hubbard, Lanier, and Robison served on the Compensation Committee during 2023 and Director Schiraldi participated in Committee meetings in an ex officio capacity. There were no Compensation Committee interlocks or insider (employee) participation during 2023.
COMPENSATION COMMITTEE REPORT
Premier Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and our annual report on Form 10-K.
Marty Adams, Chair
Terri A. Bettinger
John L. Bookmyer
Lee Burdman
Jean A. Hubbard
Nikki R. Lanier
Mark A. Robison
March 11, 2024
SUMMARY COMPENSATION TABLE
The table below summarizes the total compensation paid or earned by each of the NEOs for the fiscal years ended December 31, 2023, 2022, and 2021. The NEOs include those persons serving as our CEO and CFO during 2023 and our three other most highly compensated executive officers in 2023. The titles for each executive officer below are as of December 31, 2023.
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) |
| Name and Principal Position | Year | Salary($) | Bonus($) | Stock Awards ($)(4) | Non-Equity Incentive Plan Compen- sation ($)(5) | All Other Compen-sation ($)(6) | Total($) |
| Gary M. Small (1) President and CEO of Premier and Premier Bank | 2023 2022 2021 | 617,077 590,038 549,173 | - - - | 309,590 308,829 950,427 | 119,340 210,000 290,975 | 61,719 55,242 55,252 | 1,107,726 1,164,109 1,845,827 |
| Paul D. Nungester Executive Vice President and Chief Financial Officer of Premier and Premier Bank | 2023 2022 2021 | 373,862 344,471 321,058 | 50,000 - - | 130,566 126,309 83,368 | 58,669 102,635 114,985 | 20,523 16,134 21,821 | 633,620 589,549 541,232 |
| Rick L. Hull Executive Vice President and Head of Commercial Banking | 2023 | 330,665 | - - | 65,097 | 87,559 | 45,988 | 529,309 |
| Varun Chandhok (2) Executive Vice President and Chief Information and Operations Officer | 2023 2022 2021 | 320,885 308,654 225,000 | - - - | 111,882 112,976 270,641 | 82,107 97,443 106,575 | 21,174 15,328 95,387 | 536,048 534,401 697,603 |
| Shannon M. Kuhl (3) Executive Vice President and Chief Legal Officer | 2023 | 288,796 | 30,000 | 170,685 | 36,659 | 15,156 | 541,296 |
(1) In connection with his transition to the Chief Executive Officer of Premier and Premier Bank effective April 1, 2021, Mr. Small received a restricted stock award of 22,500 shares to vest over a period of five years with a grant date fair value of $755,550 reflected in column (e) in addition to the award described in note 4 below. (2) In connection with the hiring of Mr. Chandhok, he received a restricted stock award of 6,014 shares to vest over a period of three years with a grant date fair value of $199,124 reflected in column (e) in addition to the award described in note 4 below. (3) In 2023, Ms. Kuhl received a retention restricted stock award of 3,985 shares to vest over a period of three years with a grant date fair value of $98,748 reflected in column (e) in addition to the award described in note 4 below. (4) The amounts in column (e) reflect the aggregate grant date fair value of restricted stock awards and shares underlying performance share units granted under the Long-Term Incentive Program and the relevant year’s long-term incentive compensation awards, as computed in accordance with FASB ASC Topic 718, based upon the probable outcomes. Restricted stock awards were as follows: Mr. Small 4,139 shares or $101,488; Mr. Nungester 1,744 shares or $43,216; Mr. Hull 846 shares or $20,964; Mr. Chandhok 1,494 shares or $37,021; and Ms. Kuhl 961 shares or $23,814. All restricted stock awards vest annually over three years. Assumptions used in the performance share unit calculations are not materially different from the amounts included in Note 20 to our audited financial statements for the fiscal year ended December 31, 2023, included in our Annual Report on Form 10-K filed with the SEC on February 29, 2024. If maximum results are achieved under the Long-Term Incentive Program for the 2023 performance share unit awards, the value of such payout under these awards at the grant date would be as follows: Mr. Small 12,730 shares, or $312,140, Mr. Nungester 5,287 shares, or $131,012; Mr. Hull 2,671 shares, or $66,187; and Mr. Chandhok 4,531 shares, or $112,278; and Ms. Kuhl 2,913 shares, or $72,184. All awards are paid in Premier common shares. | |||||||
(5) The dollar amounts in column (f) reflect the cash short-term incentive awards earned by the named individuals with respect to performance during the applicable fiscal year, as discussed in further detail under the heading “2023 Short-Term Incentive Compensation” above. (6) The dollar amount shown as “All Other Compensation” includes the following perquisites and personal benefits: |
| Name | Club Membership ($) | 401(k) Match ($) | Value of Life Insurance ($) | Disability & Life Insurance Premium ($) | Employee Stock Purchase Plan Match ($) | Company Deferred Compensation Plan Contribution ($) | Total ($) |
| Gary Small | 8,843 | 13,200 | 2,733 | 13,902 | - | 23,041 | 61,719 |
| Paul Nungester | - | 13,200 | 490 | 2,897 | 1,800 | 2,136 | 20,523 |
| Rick Hull | 16,377 | 9,949 | 2,085 | 16,025 | 975 | 577 | 45,988 |
| Varun Chandhok | - | 10,092 | 650 | 1,626 | - | 8,806 | 21,174 |
| Shannon Kuhl | - | 11,107 | 417 | 1,448 | - | 2,184 | 15,156 |
2023 GRANTS OF AWARDS
During 2023, we made awards to certain NEOs as part of short-term and long-term incentive compensation under the Long-Term Incentive Program, as described above. The short-term incentive compensation awards provide for cash payments. The long-term incentive compensation awards are made in PSUs and RSAs and settled in PFC shares.
| Name | Grant Date | Date Approved by Comp Committee | Estimated Future Payouts Under Non- Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | All Other Awards: | Grant Date Fair Value of Stock Awards ($)(3) | ||||
| Threshold ($) | Target ($) | Maximum ($) | Threshold | Target (Shares/ Units) | Maximum (Share/ Units) | |||||
| Gary Small | 3/2/2023 3/2/2023 | 3/2/2023 3/2/2023 | 106,121 n/a | 212,242 n/a | 318,363 n/a | 4,244 n/a | 8,487 n/a | 12,730 n/a | n/a 4,139 | 208,101 101,488 |
| Paul Nungester | 2/14/2023 2/14/2023 | 2/14/2023 2/14/2023 | 45,076 n/a | 90,151 n/a | 135,227 n/a | 1,763 n/a | 3,525 n/a | 5,287 n/a | n/a 1,744 | 87,350 43,216 |
| Rick Hull | 2/14/2023 2/14/2023 | 2/14/2023 2/14/2023 | 22,773 n/a | 45,545 n/a | 68,318 n/a | 891 n/a | 1,781 n/a | 2,671 n/a | n/a 846 | 44,133 20,964 |
| Varun Chandhok | 2/14/2023 2/14/2023 | 2/14/2023 2/14/2023 | 38,628 n/a | 77,256 n/a | 115,884 n/a | 1,511 n/a | 3,021 n/a | 4,531 n/a | n/a 1,494 | 74,860 37,021 |
| Shannon Kuhl | 2/14/2023 2/14/2023 2/14/2023 | 2/14/2023 2/14/2023 2/14/2023 | 24,833 n/a n/a | 49,665 n/a n/a | 74,498 n/a n/a | 971 n/a n/a | 1,942 n/a n/a | 2,913 n/a n/a | n/a 961 3,985 | 48,123 23,814 98,748 |
(1) Short-term incentive awards granted in 2023 pursuant to the Short-Term Incentive Plan, as described above. Actual amounts are included in the “2023 Target Bonus Potential and Awards” table on page 40. (2) Long-term incentive awards granted in the form of PSUs and RSAs in 2023 under the Long-Term Incentive Program, as described above. (3) Grant date fair value determined by multiplying shares, or Target shares in the case of the PSUs issued February 14, 2023 and March 2, 2023, times the grant date closing stock price. Applicable closing stock prices were: $24.78 on February 14, 2023 and $24.52 on March 2, 2023. | ||||||||||
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2023
The following table provides information concerning unexercised options and non-vested stock awards for each NEO outstanding as of the end of the most recently completed fiscal year.
| Option Awards | Stock Awards | |||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price | Option Expiration Date | Number of shares or units of stock that have not vested (#)(1) | Market value of shares or units of stock that have not vested ($)(2) | Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#)(3) | Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($)(2) |
| Gary Small | 18,575 | - | $26.00 | 2/21/2028 | 17,669 | 425,823 | 41,985 | 1,009,670 |
| Paul Nungester | - | - | - | - | 1,744 | 42,030 | 17,731 | 427,317 |
| Rick Hull | - | - | - | - | 846 | 20,389 | 9,006 | 217,045 |
| Varun Chandhok | - | - | - | - | 2,496 | 60,154 | 15,121 | 364,416 |
| Shannon Kuhl | - | - | - | - | 4,946 | 119,199 | 9,957 | 239,964 |
(1) Mr. Small’s restricted shares vest as follows: 4,510 on each of April 1, 2024, April 1, 2025 and April 1, 2026; 1,380 on March 2, 2024; 1,379 on March 2, 2025; and 1,380 on March 2, 2026. Mr. Nungester’s restricted shares vest as follows: 581 on February 14, 2024; 582 on February 14, 2025; and 581 on February 14, 2026. Mr. Hull’s restricted shares vest as follows: 282 on each of February 14, 2024, February 14, 2025, and February 14, 2026. Mr. Chandhok’s restricted shares vest as follows: 1,002 on April 1, 2024 and 498 on each of February 14, 2024, February 14, 2025, and February 14, 2026. Ms. Kuhl’s restricted shares vest as follows: 1,648 on February 14, 2024; 1,649 on February 14, 2025; and 1,649 on February 14, 2026. (2) Market value determined by multiplying unvested shares by the December 31, 2023, stock price of $24.10. (3) This column reflects the PSUs that were granted as long-term incentive compensation awards pursuant to the Company’s Long-Term Incentive Program. The PSUs vest on the date the Compensation Committee certifies the performance results at the end of the applicable performance which will be within 60 days following the completion of the performance period. While this generally occurs in the month of February, the date is not specified. Mr. Small’s PSUs vest as follows: 13,900 PSUs in February 2024; 15,265 PSUs in February 2025; and 12,730 PSUs in February 2026. Mr. Nungester’s PSUs vest as follows: 6,037 in February 2024; 6,407 PSUs in February 2025; and 5,287 PSUs in February 2026. Mr. Hull’s PSUs vest as follows: 3,096 in February 2024; 3,239 in February 2025; and 2,671 PSUs in February 2026. Mr. Chandhok’s PSUs vest as follows: 5,024 in February 2024; 5,566 in February 2025; and 4,531 PSUs in February 2026. Ms. Kuhl’s PSUs vest as follows: 3,466 in February 2024; 3,578 in February 2025; and 2,913 PSUs in February 2026. | ||||||||
OPTION EXERCISES AND STOCK VESTED IN 2023
The following table provides information concerning exercises of stock options and vesting of stock awards during the most recently completed fiscal year for each of the NEOs on an aggregated basis. The table reports the number of shares for which the options were exercised or vested and the aggregate dollar value realized upon exercising those options or when the stock awards became vested. No NEOs exercised options during 2023.
| Option Awards | Stock Awards | |||
| Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) |
| Gary Small | - | - | 13,011 | 304,418 |
| Paul Nungester | - | - | 4,446 | 110,172 |
| Rick Hull | - | - | 2,315 | 57,366 |
| Varun Chandhok | - | - | 2,005 | 41,684 |
| Shannon Kuhl | - | - | - | - |
NONQUALIFIED DEFERRED COMPENSATION
Premier maintains the non-qualified Premier Financial Corp. Deferred Compensation Plan (the “Premier DCP”), effective January 1, 2022, to attract and maintain key employees and members of the Board. Eligible participants are identified annually by the Board, acting through the Compensation Committee, and include all of the Company’s NEOs. The Premier DCP allows employee participants to defer up to 80% of their base salary and up to 100% of their annual short-term incentive compensation. Directors may defer up to 100% of their cash retainer fees. Premier may make discretionary contributions to participants. Deferral elections are made annually and are generally irrevocable; however, employee participants may adjust the deferral election for short-term incentive compensation once after the initial annual election. The participant elects the timing and manner of distributions from the Premier DCP. The timing of distributions may be based upon the individual’s separation from service or a date specified by the participant, permitting distributions while a participant is still employed, and may be paid in a lump sum or in annual installments. Contributions accrue interest, earnings, and losses based on the performance of the investment option selected by the participant from the designated investment options determined by the Compensation Committee. Participants may alter their investment options at any time. The Premier DCP also allows for hardship withdrawals upon the approval of the Compensation Committee.
Premier may make discretionary contributions to the Premier DCP, including contributions designed to match employer contributions under the 401(k) Savings Plan for individuals who elect to defer into the Premier DCP rather than the 401(k) Savings Plan (“make-up contributions”), or if the individual’s participation or the Company’s matching contributions in the 401(k) Savings Plan are limited under Section 401(a)(17) of the Internal Revenue Code (“supplemental contributions”). Company discretionary contributions are only payable following the individual’s separation from service to the Company. Employer make-up and supplemental contributions are 100% vested when made while other discretionary contributions vest according to a schedule determined by the Compensation Committee, though these will fully vest in the event of the death of the participant while employed by the Company or if there is a change in control of the Company.
Prior to the Premier DCP, the Company maintained the First Defiance Deferred Compensation Plan (the “First Defiance DCP”). This plan was frozen on December 31, 2021 and does not accept further participants or contributions. Mr. Nungester previously contributed to the First Defiance DCP and is a participant in this plan. The United Community Financial Corp. Deferred Compensation Plan (the “UCFC DCP”) was frozen on January 31, 2020 upon the consummation of the merger of United Community Financial Corp. into Premier in January 2020 (the “Merger”) and did not accept further participants or contributions after that date. Mr. Small and Mr. Hull previously contributed to the UCFC DCP and are participants in this plan. The First Defiance DCP and UCFC DCP have substantially similar material terms as follows:
| ● | Contributions accrue interest, earnings, and losses based on the performance of the investment option selected by the participant from the designated investment options determined by the Compensation Committee. |
| ● | Participants may alter their investment options at any time. |
| ● | Benefits are generally paid beginning in the year following the executive’s retirement or termination but have provisions for scheduled “in-service” distributions and allow for hardship withdrawals upon the approval of the Compensation Committee. |
| ● | Retirement benefits are paid either in a lump sum or in scheduled installment payments when the executive’s termination is considered a retirement. All other distributions are made in lump sum payments. |
The following table provides information with respect to our NEOs’ participation in the Premier DCP, the First Defiance DCP, and the UCFC DCP. None of our NEOs received a withdrawal or distribution under any of the deferred compensation plans in 2023.
| Executive Contributions in Last Fiscal Year | Registrant Contributions in Last Fiscal Year (1) | Aggregate Earnings in Last Fiscal Year | Aggregate Withdrawals/ Distributions in Last Fiscal Year | Aggregate Balance at Last Fiscal Year End (2) | |
| Name | ($) | ($) | ($) | ($) | ($) |
| Gary M. Small | 69,300 | 23,041 | 157,976 | - | 780,803 |
| Paul D. Nungester | - | 2,136 | 385 | - | 8,859 |
| Rick L. Hull | 29,248 | 577 | 43,409 | - | 390,254 |
| Varun Chandhok | - | 8,806 | 340 | - | 9,146 |
| Shannon M. Kuhl | 18,759 | 2,184 | 6,839 | - | 50,897 |
(1) All amounts are included in the All Other Compensation column of the Summary Compensation Table. (2) All amounts except Aggregate Earnings have been reported as compensation in the Summary Compensation Table in previous years. | |||||
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Our NEOs are entitled to certain compensation in the event of the termination of their employment, including by resignation, retirement, death or disability, involuntary termination, or for “good reason” in connection with a change of control of the Company. Additionally, Mr. Small and Mr. Nungester are entitled to severance compensation in the event of a termination for “good reason” not in connection with a change in control of the Company.
Accrued Benefits Payable Upon Any Termination
Regardless of the manner in which a NEO’s employment terminates, each executive is entitled to receive amounts earned during the term of their employment. These amounts (the “Accrued Benefits”) are payable without respect to an Executive Agreement (as defined below) and are payable to other terminated employees of the Company to the extent the individual participates in the applicable benefit plans. All payments would be made in accordance with the Company’s normal payroll practices or in accordance with the terms of the associated plan. These Accrued Benefits are not described in the table entitled “Executive Benefits and Payments upon Termination” on page 57 and include:
| ● | Base salary earned through the date of termination; |
| ● | Balance of accounts in the deferred compensation plans; |
| ● | Accrued but unused vacation pay; and |
| ● | All amounts held in the individual’s account in the 401(k) Savings Plan. |
Benefits Payable Under the Short-Term Incentive Plan for Certain Terminations
For 2023, each NEO would receive amounts under the Short-Term Incentive Plan in certain termination scenarios if not directly addressed in the individual’s Executive Agreement described below. While Mr. Nungester is the only NEO whose Executive Agreement does not directly address a severance benefit relating to the Short-Term Incentive Plan for the year of termination and who is eligible to receive a payment as described in the Short-Term Incentive Plan, the benefit is similar to that payable under the Executive Agreements of the other NEOs. If the executive’s employment is terminated as a result of their death, disability, retirement, or by the Company without cause, a pro-rata portion of the award (a “Pro-Rated Short Term Incentive Payment”) will vest in proportion to the number of months or partial months elapsed during the performance period before the termination of the individual’s employment. For any of these termination scenarios, the portion of the award attributable to corporate performance would be based on actual performance determined at the end of the performance period in the ordinary administration of the Short-Term Incentive Plan. The portion of the award attributable to individual performance will be assumed to be at target, except that the Compensation Committee may determine a different level of individual goal satisfaction in the event of a retirement or termination by the Company without cause. Any payment would be made at the same time as other participants in the plan. This benefit is included in the table entitled “Executive Benefits and Payments upon Termination” on page 57.
Benefits Payable Under the Short-Term Incentive Plan in Connection with a Change in Control
If there is a change in control (as defined in the 2018 Equity Incentive Plan) during a performance period, the award for that performance period will be deemed earned and vested at target levels, unless the Compensation Committee determines that actual performance or a different treatment is appropriate, on the effective date of the Change in Control.
Benefits Received Under the Long-Term Incentive Program for Certain Terminations
The Long-Term Incentive Program and the terms of award agreements issued under this plan provide for the acceleration of certain benefits in connection with certain termination scenarios if these were not directly addressed in the individual’s Executive Agreement described below. As only Mr. Small’s Executive Agreement addresses the treatment of Long-Term Incentive benefits in the event of his termination, the following description applies to the benefits applicable to the NEOs other than Mr. Small. These benefits are included in the table entitled “Executive Benefits and Payments upon Termination” on page 57.
| Equity Award Type | Termination Scenarios(1) | Benefit |
| Restricted Stock Unit (last issued in 2021) |
| Accelerated FULL vesting of all unvested restricted stock units |
| Unvested restricted stock units forfeited | |
| Restricted Stock Award (issued in 2021) |
| Accelerated FULL vesting of all unvested restricted stock awards |
| Unvested RSAs forfeited | |
| Restricted Stock Award (issued in 2022 and forward) |
| Accelerated FULL vesting of all unvested RSAs |
 Retirement | Accelerated vesting of a PRO-RATA portion of unvested RSA award (determined by the number of months, including any partial months, of the restricted period that have elapsed at the time of termination)(a “Pro- Rated RSA Benefit”) | |
| Unvested RSAs forfeited |
| Equity Award Type | Termination Scenarios(1) | Benefit |
| Performance Share Unit (issued in 2021) |
| Accelerated FULL vesting of unvested PSUs using the actual performance of the Company through the end of the performance period and payable at the end of the performance period |
| Accelerated vesting of a PRO-RATA portion (determined by the number of months, including any partial months, elapsed during the performance period) of unvested PSUs (a “Pro-Rated PSU Benefit”) calculated using the actual performance of the Company through the end of the performance period and payable at the end of the performance period | |
| Accelerated FULL vesting upon consummation of the Change in Control (1) using the actual performance of the Company for closed years in the performance period, and (2) at target for open years in the performance period | |
| Performance Share Unit (issued in 2022 and forward) |
| Accelerated FULL vesting of unvested PSUs calculated at target and payable within 90 days of vesting |
| Pro-Rated PSU Benefit calculated at target, vests and payable one year after separation | |
| Accelerated FULL vesting upon consummation of the Change in Control (1) using the actual performance of the Company for closed years in the performance period, and (2) at target for open years in the performance period | |
| Unvested PSUs forfeited |
| (1) | With respect to the definition of “Cause,” all 2020 and 2021 award agreements refer to the definition assigned in the 2018 Equity Incentive Plan, while the 2022 and later award agreements refer to the definition within the NEO’s Executive Agreement. The 2021 PSU award agreements that provide a benefit upon a termination for “Good Reason” refer to the definition of Good Reason within the NEO’s Executive Agreement. Later PSU award agreements do not include a benefit payable in the event of a Good Reason termination. |
No vestings will be accelerated or benefits paid in connection with termination scenarios not described above, including any termination for cause.
The outstanding equity award agreements to our NEOs include restrictive covenants concerning confidentiality, non-competition, and/or non-solicitation to protect Premier’s interests. However, all such award agreements issued beginning in 2022 provide that if the employee is party to an Executive Agreement with restrictive covenants concerning confidentiality and non-solicitation, the terms of the Executive Agreement control in this respect in order to avoid conflicting restrictions. Mr. Small’s outstanding unvested 2021 RSA was previously amended to have the restrictive covenants of his Executive Agreement control. As Mr. Chandhok continues to hold an unvested restricted stock unit award issued in 2021, without the language deferring the restrictive covenants to the terms of his Executive Agreement, he is subject to a non-solicitation restriction under the award agreement prohibiting the solicitation of customers and employees of Premier for a period of 12 months following his termination. As Mr. Nungester’s Executive Agreement does not include restrictive covenants concerning solicitation, he is prohibited from soliciting customers and employees of Premier for a period of 12 months following his termination under his outstanding 2022, 2023, and 2024 PSU awards.
Benefits Received Under the Long-Term Incentive Program in Connection with a Change in Control
Generally, for purposes of this discussion, the definition of a “change of control” under the 2018 Equity Incentive Plan aligns with the meaning set forth in Section 409A(a)(2)(A)(v) of the Internal Revenue Code of 1986, as amended.
PSUs receive special treatment under the 2018 Equity Incentive Plan and the applicable outstanding award agreements for these awards in the event of a change in control. With or without a termination of their employment, the NEOs are entitled to accelerated vesting of outstanding PSUs, calculated using the actual performance of the Company for each closed year in the performance period and calculated at target with respect to any open years in the performance period. PSUs vesting in connection with a change in control are payable in cash rather than in shares.
Under the 2018 Equity Incentive Plan and the applicable outstanding award agreements for restricted stock units or restricted stock awards, the vesting of these awards will not accelerate and no other benefits will be payable in connection with a change in control unless the executive’s employment is also terminated without cause or by the executive for good reason in the period immediately preceding or shortly following the change in control event. For awards granted in 2021, this benefit is only in the event of a termination by the Company without cause. For awards granted in 2022, 2023 and 2024, this benefit applies in the event of a termination by the Company without cause or a termination by the executive for good reason. In the event there is such a “double trigger” consisting of both a change in control event and a permitted termination scenario, the outstanding award will fully vest.
Employment and Severance/Change in Control Agreements
Each of our NEOs has an employment agreement or a severance and change in control agreement (collectively, the “Executive Agreements”). The NEOs are not eligible to receive any payments, other than the Accrued Benefit described above, in the event of a termination “for cause” or in connection with a voluntary termination except in certain circumstances that constitute “good reason” under their respective Executive Agreements. The following summaries of the Executive Agreements are qualified by reference to the specific agreements, copies of which are identified as exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Each of the Executive Agreements requires that the executive release all claims against the Company and include expected restrictive covenants concerning confidentiality, non-competition, and/or non-solicitation to protect Premier’s interests. Each of the Executive Agreements incorporates a definition of a “change of control” consistent with the meaning set forth in Section 409A(a)(2)(A)(v) of the Internal Revenue Code of 1986, as amended, although the specific Executive Agreements provide additional description and distinctions in this regard.
Employment Agreement of Gary Small - The Company entered into an employment agreement with Mr. Small in September 2019 in anticipation of and effective upon the consummation of the Merger on January 31, 2020. Under the agreement, Mr. Small serves as the Chief Executive Officer and a director of the Company and of Premier Bank. The initial term of this agreement was for a three year period and automatically extends for additional 12-month periods unless terminated with 90 days prior written notice. The current term of the agreement ends January 31, 2025. The agreement describes Mr. Small’s compensation package from the Company, subject to adjustment by the Company.
In addition to the Accrued Benefits, the agreement provides the listed benefits to Mr. Small in the following termination scenarios:
Death or Disability – (1) the Pro-Rated Short Term Incentive Payment described above, except that the pro-ration will be based on the number of days elapsed instead of months, for the year in which the termination occurs; and (2) accelerated vesting in full of any unvested RSAs and vesting in full of any unvested PSUs calculated using the actual performance of the Company for each closed year in the performance period and calculated at target with respect to any open years in the performance period. In the event of Mr. Small’s death, his beneficiary will receive 90 days of base salary in a lump sum payment. In the event of Mr. Small’s disability, he will also receive a cash payment equal to 18 months of COBRA premiums (the “CEO COBRA Benefit”) and his group and supplemental life insurance will be maintained until he attains age 65.
Without Cause or for Good Reason – (1) a lump sum severance payment equal to two times the sum of Mr. Small’s base salary and the greater of his target short-term incentive compensation payment or the prior year’s actual short-term incentive compensation payout; (2) the CEO COBRA Benefit, (3) the Pro-Rated Short Term Incentive Payment (with the pro-ration based on the number of days elapsed instead of months); and (4) accelerated vesting in full of any unvested RSAs and vesting in full of any unvested PSU calculated in the same fashion as described above.
Without Cause or for Good Reason in Connection with a Change in Control – (1) a lump sum severance payment equal to 2.99 times the sum of Mr. Small’s base salary and the greater of his target short-term incentive compensation payment or the prior year’s actual short-term incentive compensation payout; (2) the CEO COBRA Benefit, (3) the Pro-Rated Short Term Incentive Payment (with the pro-ration based on the number of days elapsed instead of months); and (4) accelerated vesting in full of any unvested RSAs and vesting in full of any unvested PSU calculated in the same fashion as described above. The increased severance benefit to Mr. Small in connection with a change in control is only available in the event the termination occurs within the six months before or the two years following the consummation of the change in control.
Under Mr. Small’s agreement, “cause” means (1) continued intentional failure to perform under the agreement or his assigned duties; (2) engagement in willful misconduct in the course of his employment; (3) conviction or plea of guilty or nolo contender to a felony or a crime involving moral turpitude or breach of trust or duty to the Company; or (4) unauthorized disclosure of non-public confidential information. Events giving rise to a “good reason” under Mr. Small’s agreement include (1) a material diminution in his title, position, authority or duties; (2) a requirement that he report to any person or entity other than the Board; (3) a reduction in his base salary or target short-term or long-term incentive awards; (4) a material change in the geographic location of his primary work location; (5) the non-renewal of the agreement without an offer of a substantially similar agreement; or (6) any material breach of the agreement. Mr. Small must give notice of the good reason event within 90 days of becoming aware of it, after which the Company will have 30 days to remedy the condition. If the Company does not remedy the condition, Mr. Small must terminate his employment to receive any payments associated with a termination for good reason.
Mr. Small’s agreement includes language modifying the benefits due to him in the event the payments would be “excess parachute payments” under Section 280G of the Internal Revenue Code. If this were to occur, Mr. Small’s payments and benefits under the agreement may be reduced if doing so results in Mr. Small receiving the net greatest benefit compared to paying the excise tax under Section 4999 of the Internal Revenue Code.
Mr. Small’s agreement includes restrictive covenants concerning non-competition and non-solicitation, of customers and of employees, for a period of one year following the termination of his employment.
Employment Agreement of Paul Nungester - The Company entered into an employment agreement with Mr. Nungester in May 2019 pursuant to which Mr. Nungester serves as the Chief Financial Officer of the Company. The initial term of this agreement was 12 months and it is evergreen, extending in such a fashion that the term is always 12 additional months until notice of termination is given and the term then becomes fixed at 12 months. The agreement describes Mr. Nungester’s compensation package from the Company, subject to adjustment by the Company.
In addition to the Accrued Benefits, the agreement provides the listed benefits to Mr. Nungester in the following termination scenarios:
Without Cause or for Good Reason – lump sum payment equal to Mr. Nungester’s base salary plus the average annual payment paid under the short-term incentive plan over the last five years.
Without Cause or for Good Reason in Connection with a Change in Control– (1) a lump sum payment equal to 2.99 times the sum of Mr. Nungester’s base salary plus the average annual payment paid under the short-term incentive plan over the last five years; (2) payment on Mr. Nungester’s behalf of insurance premiums to maintain medical and dental insurance coverage under COBRA until the earlier of the first anniversary of the termination or the date on which Mr. Nungester is eligible to participate in another employer’s comparable plan. The increased severance benefit to Mr. Nungester in connection with a change in control is only available in the event the termination occurs within the six months before or the one year following the consummation of the change in control.
Under Mr. Nungester’s agreement, “cause” means personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation or final cease-and-desist order, or a material breach of the agreement. Events giving rise to a “good reason” under Mr. Nungester’s agreement include (1) the assignment of duties inconsistent with his position or duties immediately prior to the assignment; (2) a material change in his reporting responsibilities or titles; (3) his not being appointed to the position of chief financial officer; (4) a reduction in base salary; (5) the relation of the Company’s principal offices away from the Defiance, Ohio area; (6) a material reduction in fringe benefits; (7) the failure of the Company to obtain the assumption of the agreement by any successor; and (8) the Company’s failure to comply with the agreement. Mr. Nungester must terminate his employment to receive any payments associated with a termination for good reason.
Mr. Nungester’s agreement includes language modifying the benefits due to him in the event the payments would be “excess parachute payments” under Section 280G of the Internal Revenue Code. If this were to occur, Mr. Nungester’s payments and benefits under the agreement will be reduced by the minimum amount necessary to result in no portion of the payments and benefits being non-deductible to the Company and subject to the excise taxes imposed under the Internal Revenue Code for parachute payments.
Mr. Nungester’s agreement includes restrictive covenants concerning non-competition for a period of one year following the termination of his employment.
Severance and Change in Control Protection Agreements of Rick Hull, Varun Chandhok, and Shannon Kuhl - The Company entered into Severance and Change in Control Protection Agreements with Varun Chandhok and Shannon Kuhl effective April 2022. The initial term of these agreements is 12 months and automatically extends for additional 12-month periods unless terminated with 90 days prior written notice. The current term of each of Mr. Chandhok’s and Ms. Kuhl’s agreements ends March 31, 2024. The Company entered into a Severance and Change in Control Protection Agreement with Rick Hull in February 2024 with an initial term ending March 31, 2025 that similarly will renew for additional 12-month periods unless terminated with 90 days prior written notice.
In addition to the Accrued Benefits, the agreements provide the listed benefits to each of Mr. Hull, Mr. Chandhok, and Ms. Kuhl in the following termination scenarios:
Disability – (1) the Pro-Rated Short Term Incentive Payment described above; and (2) subject to the timely election of continuation coverage of health benefits in accordance with COBRA, payment of the full amount of the executive’s premiums for this continued coverage until the earlier of 18 months following the termination of employment or the executive becomes eligible for group health coverage from another employer (the “Severance/CIC COBRA Subsidy”).
Death – (1) the Pro-Rated Short Term Incentive Payment described above; and (2) subject to the timely election of continuation coverage of health benefits in accordance with COBRA by the executive’s surviving beneficiary, payment of a lump sum equal to the sum total of premiums for 18 months of continued coverage.
Without Cause –
Mr. Chandhok and Ms. Kuhl will receive (1) severance payments in the form of salary continuation for a period of 12 months, (2) a lump sum payment equal to the target award payable under the Short-Term Incentive Plan for the year in which the termination occurs, (3) a lump sum payment equal to the Pro-Rated Short Term Incentive Payment for the year in which the termination occurs; (4) outplacement services not to exceed $12,000; and (5) the Severance/CIC COBRA Subsidy.
Mr. Hull will receive (1) severance payments in the form of salary continuation for a period of 18 months, (2) a lump sum payment equal to 1.5 times the target award payable under the Short-Term Incentive Plan for the year in which the termination occurs, (3) a lump sum payment equal to the Pro-Rated Short Term Incentive Payment for the year in which the termination occurs; (4) outplacement services not to exceed $12,000; and (5) the Severance/CIC COBRA Subsidy.
Without Cause or for Good Reason in Connection with a Change in Control – (1) severance payments in the form of salary continuation for a period of 18 months; (2) a lump sum payment equal to 1.5 times the target award payable under the Short-Term Incentive Plan for the year in which the termination occurs; (3) a lump sum payment equal to the Pro-Rated Short Term Incentive Payment for the year in which the termination occurs; (4) outplacement services not to exceed $12,000; and (5) the Severance/CIC COBRA Subsidy. The increased severance benefits to Mr. Chandhok and Ms. Kuhl in connection with a change in control are only available in the event the executive’s employment is terminated (1) by the Company within the six months prior to or the 12 months following the change in control, or (2) by the executive for good reason within 12 months following the change in control.
Under these agreements, “cause” means (1) the executive’s indictment or conviction of, or plea of guilty or nolo contendere to any felony, or any other crime that involves moral turpitude, theft, dishonesty, or breach of trust; (2) breach of fiduciary duty to the Company; (3) willful misconduct in the course of the executive’s employment; (4) the executive being prohibited from participating the affairs of the Company or its affiliates by and order of the FDIC; (5) the executive’s willful and repeated failure to perform their duties; (6) the executive engaging in unsafe or unsound banking practices; or (7) any other material breach of the agreement or of any code or policy of the Company by the executive. Events giving rise to a “good reason” under these agreements include (1) a material (10% or greater) reduction in the executive’s base salary; (2) a material reduction in the executive’s title; (3) a material change in the geographic location of the executive’s principal work location; or (4) a material breach of the agreement by the Company. The executive must give notice of the good reason event within 90 days of becoming aware of it, after which the Company will have 30 days to remedy the condition. If the Company does not remedy the condition, the executive must terminate their employment within 90 days of the cure period to receive any payments associated with a termination for good reason.
Each of Mr. Hull’s, Mr. Chandhok’s and Ms. Kuhl’s agreements include language modifying the benefits due in the event the payments would be “excess parachute payments” under Section 280G of the Internal Revenue Code. If this were to occur, the executive’s payments and benefits under the agreement will be reduced by the minimum amount necessary to result in no portion of the payments and benefits being non-deductible to the Company and subject to the excise taxes imposed under the Internal Revenue Code for parachute payments.
Each of these agreements includes restrictive covenants concerning non-competition for a period of six months following the termination of the executive’s employment, and concerning non-solicitation, of customers and of employees, for a period of one year following the termination of the executive’s employment.
The table below summarizes the estimated payments due to the NEOs under the short-term incentive plan, the long-term incentive plan, and the applicable Executive Agreement described above in the event of the NEO’s termination of the employment. The amounts shown assume that such termination was effective as of December 31, 2023, and, thus, include amounts earned through such time and are estimates of the amounts which would be paid out to the executives upon their termination. The actual amounts to be paid out can only be determined at the time of such executive’s separation from us.
Executive Benefits and Payments upon Termination
Voluntary Termination (w/o Good Reason and no CIC) ($)
| Termination by Employee with Good Reason (No CIC) ($)
| Involuntary Termination Not for Cause (No CIC) ($)
| Retirement ($)
| Death ($)
| Disability ($)
| Change of Control Involuntary or Good Reason Termination(2) ($)
| |
| Gary Small | |||||||
Cash Payments (1) Vesting of equity awards | -- -- | 2,211,660 826,033 | 2,211,660 826,033 | 312,000 400,210 | 468,000 1,070,072 | 339,660 1,070,072 | 3,138,300 914,478 |
| Paul Nungester | |||||||
Cash Payments (1) Vesting of equity awards | -- -- | 601,771 54,014 | 601,771 252,864 | 108,669 252,864 | 108,669 437,395 | 108,669 437,395 | 1,626,537 356,968 |
| Rick Hull | |||||||
| Cash Payments (1) | -- | -- | 762,191 | 87,559 | 115,219 | 115,219 | 829,031 |
| Vesting of equity awards | -- | 27,695 | 106,780 | 106,780 | 158,901 | 158,901 | 125,824 |
| Varun Chandhok | |||||||
Cash Payments (1) Vesting of equity awards | -- -- | -- 48,241 | 559,310 208,919 | 82,107 208,919 | 113,474 297,810 | 113,474 297,810 | 776,228 241,097 |
| Shannon Kuhl | |||||||
Cash Payments (1) Vesting of equity awards | -- -- | -- 31,012 | 367,883 214,834 | 66,659 214,834 | 66,659 271,978 | 66,659 271,978 | 512,495 235,520 |
| (1) | Cash payments include any amounts payable as short-term incentive compensation, severance payments due under an Executive Agreement, the COBRA Amount, and other payments made with respect to the continuation of medical benefits. |
| (2) | Mr. Chandhok’s PSU awards (with a value of $180,944) and RSAs (with a value of $36,005) will vest in connection with a change in control in the event of either an involuntary termination without cause or a termination by Mr. Chandhok for Good Reason. Mr. Chandhok’s RSUs (with a value of $24,149) will only vest in connection with a change in control in the event of an involuntary termination without cause. Amounts reflected for other NEOs reflect vesting in connection with a change in control in the event of either an involuntary termination without cause or a termination by the NEO for Good Reason. |
CEO PAY RATIO
We are required to disclose the median of the total compensation of the Company’s employees, excluding the Company’s CEO, for the last completed fiscal year, the annual total compensation of the Company’s CEO for the last completed fiscal year, and the ratio between the foregoing compensation amounts. We identified the median employee by examining the 2023 total federal taxable compensation through December 31, 2023 for all individuals, excluding our CEO, who were employed by us on November 20, 2023 (whether employed on a full-time, part-time, or seasonal basis). For such employees, we did not make any assumptions, adjustments, or estimates with respect to total federal taxable compensation, and we did not annualize the compensation for any full-time employees that were not employed by us for all of 2023. After identifying the median employee, we calculated annual total compensation for such employee using the same methodology we use for our NEOs as set forth in the Summary Compensation Table on page 44 of this Proxy Statement.
For fiscal year 2023, the median annual total compensation for all employees (excluding the CEO) was $45,777, and the annual total compensation of our CEO was $1,194,800, resulting in a ratio of 1: 26.10.
PAY VERSUS PERFORMANCE DISCLOSURE
In accordance with rules adopted by the Securities and Exchange Commission (“SEC”) pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, we provide the following disclosure regarding executive “compensation actually paid” (“CAP”) and certain Company performance for the fiscal years listed below. You should refer to our Compensation Discussion & Analysis (“CD&A”) for a complete description of how executive compensation relates to Company performance and how the Compensation Committee makes its decisions.
| Year-end value of $100 invested on 12/31/2019 in: | ||||||||||
| Year | Summary Compensation Table Total for Gary M. Small(1) $ | Summary Compensation Table Total for Donald P. Hileman(2) $ | Compensation Actually Paid to Gary M. Small(3) $ | Compensation Actually Paid to Donald P. Hileman (3) $ | Average Summary Compensation Table Total for Non-CEO NEOs (4) $ | Average Compensation Actually Paid to Non-CEO NEOs (3),(4) $ | PFC(5) $ | KBW Nasdaq Bank Index(5) $ | Net Income (in millions) $ | Core Return on Assets(6) % |
| 2023 | 1,107,726 | - | 719,472 | - | 560,068 | 479,562 | 92.11 | 84.71 | 111.3 | 1.30% |
| 2022 | 1,164,109 | - | 766,302 | - | 614,574 | 445,583 | 96.66 | 88.97 | 102.2 | 1.29% |
| 2021 | 1,845,827 | - | 2,158,147 | - | 670,632 | 809,502 | 106.24 | 116.64 | 126.1 | 1.68% |
| 2020 | - | 3,349,504 | - | 3,361,718 | 736,489 | 736,502 | 76.39 | 86.37 | 63.1 | 1.51% |
| (1) | Gary M. Small became CEO of the Company on April 1, 2021 and is our current CEO. |
| (2) | Donald P. Hileman became CEO of the Company on January 1, 2014 and served as CEO until April 1, 2021, at which time he was appointed to Executive Chair. |
| (3) | Deductions from, and additions to, total compensation in the Summary Compensation Table for 2023 to calculate Compensation Actually Paid include: |
| 2023 | ||
Gary Small $ | Average Non-CEO NEOs $ | |
| Total Compensation from Summary Compensation Table | 1,107,726 | 560,068 |
| Adjustments for Equity Awards | ||
| Adjustment for grant date values in the Summary Compensation Table | (309,590) | (119,557) |
| Year-end fair value of unvested awards granted in the current year | 207,280 | 86,933 |
| Year-over-year difference of year-end fair values for unvested awards granted in prior years | (262,310) | (45,139) |
| Difference in fair values between prior year-end fair values and vest date fair values for awards granted in prior years | (45,659) | (5,542) |
| Forfeitures during current year equal to prior year-end fair value | - | - |
| Cash dividends paid on restricted stock awards | 22,025 | 2,799 |
| Total Adjustments for Equity Awards | (388,253) | (80,506) |
| Compensation Actually Paid (as calculated) | 719,472 | 479,562 |
| (4) | Non-CEO NEOs reflect the average Summary Compensation Table total compensation and average Compensation Actually Paid for the following executives by year: |
2023: Paul D. Nungester, Rick L. Hull, Varun Chandhok, Shannon M. Kuhl | ||
2022: Donald P. Hileman, Paul D. Nungester, Tina M. Shaver, Varun Chandhok, Matthew T. Garrity | ||
| 2021: Donald P. Hileman, Paul D. Nungester, Varun Chandhok, Matthew T. Garrity, Jason L. Gendics, Vince J. Liuzzi | ||
2020: Gary M. Small, Paul D. Nungester, Matthew T. Garrity, Vince J. Liuzzi, Jude J. Nohra |
| (5) | TSR is determined based on the value of an initial fixed investment of $100, and the reinvestment of all dividends are assumed. The TSR peer group consists of the KBW Nasdaq Bank Index. |
| (6) | Core Return on Assets represents Net Income excluding merger-related provision and other costs divided by Total Assets. |
Tabular List of Financial Performance Measures
In our assessment, the most important financial performance measures used to link CAP (as calculated in accordance with the SEC rules), to our NEOs in 2023 to our performance were:
| ● | Return on Assets; |
| ● | Pre-Tax, Pre-Provision Income; |
| ● | Average Loan Growth; |
| ● | Efficiency Ratio; |
| ● | Average Deposit Growth; and |
| ● | Relative TSR. |
Pay Versus Performance: Graphical Description
The illustrations below provide a graphical description of CAP (as calculated in accordance with the SEC rules) and the following measures:
| ● | the Company’s cumulative TSR and the Peer Group’s cumulative TSR; |
| ● | the Company’s Net Income; and |
| ● | the Company Selected Measure, which for Premier Financial is Return on Assets. |
CAP and Cumulative TSR / Cumulative TSR of the Peer Group
CAP and Company Net Income
CAP and Company Core Return on Assets
BENEFICIAL OWNERSHIP
Security Ownership of Certain Beneficial Owners
The following table sets forth information about the only persons known to the Company to own beneficially more than 5% of our outstanding common shares, as of December 31, 2023:
| Amount and Nature of Beneficial Ownership | ||
| Name and Address of Beneficial Owner | Shares Beneficially Owned | Percent of Class Outstanding |
BlackRock, Inc. 55 East 52nd Street New York, New York 10055 | 4,544,175 (1) | 12.7% (1) |
Dimensional Fund Advisors LP Building One, 6300 Bee Cave Road Austin, Texas 78746 | 2,254,801 (2) | 6.3% (2) |
The Vanguard Group 100 Vanguard Blvd. Malvern, PA 19355 | 1,973,151 (3) | 5.52% (3) |
(1) As of December 31, 2023, and based on a Schedule 13G/A filed with the SEC on January 23, 2024, BlackRock, Inc. possesses sole voting power over4,257,233 shares and sole dispositive power over 4,544,175 shares. (2) As of December 29, 2023, and based on a Schedule 13G/A filed with the SEC on February 9, 2024, Dimensional Fund Advisors LP (“Dimensional”), an investment advisor registered under Section 203 of the Investment Advisors Act of 1940, possesses sole voting power over 2,213,203 shares and sole dispositive power over 2,254,801shares. All shares reported are owned by the funds for which Dimensional serves as investment advisor, and Dimensional disclaims beneficial ownership of such securities. (3) As of December 29, 2023, and based on a Schedule 13G/A filed with the SEC on February 13, 2024, The Vanguard Group possesses shared voting power over 47,120 shares, sole dispositive power over 1,894,742 shares and shared dispositive power over 78,409 shares. | ||
Beneficial Ownership of Management
The following table includes, as of March 1, 2024, certain information as to the PFC shares beneficially owned by (1) each director and nominee and (2) all of our directors and executive officers as a group.
Amount and Nature of Beneficial Ownership
| ||
| Name of Beneficial Owner (1) | Shares Beneficially Owned (2) | Percent of Class Outstanding (3) |
| Marty E. Adams | 79,939 | - |
| Zahid Afzal (4) | 51,091 | - |
| Louis Altman (5) | 48,076 | - |
| Terri Bettinger | 8,889 | - |
| John L. Bookmyer (6) | 57,019 | - |
| Lee Burdman (7) | 72,130 | - |
| Varun Chandhok (8) | 14,339 | - |
| Donald P. Hileman | 94,998 | - |
| Jean A. Hubbard | 18,766 | - |
| Rick L. Hull | 21,659 | - |
| Shannon M. Kuhl | 5,937 | - |
| Nikki R. Lanier | 3,234 | - |
| Charles D. Niehaus | 21,824 | - |
| Paul D. Nungester | 43,211 | - |
| Mark Robison | 15,154 | - |
| Richard J. Schiraldi | 45,174 | - |
| Gary M. Small (9) | 93,932 | - |
| Samuel S. Strausbaugh | 22,334 | - |
All current directors and executive officers as a group (25 persons)
| 795,648 | 2.22% |
(1) Each of the directors and executive officers may be contacted at the address of Premier. (2) Share numbers shown are rounded to the nearest whole number. The beneficial owner has sole voting and investment power over the shares unless otherwise noted. (3) Based on 35,831,804 shares of common stock outstanding and unexercised options as of March 1, 2024. If no percent is provided in this column, the number of shares is less than 1% of the total outstanding Premier shares. (4) Includes 28,108 shares owned by the living trust of Mr. Afzal’s spouse. (5) Includes 965 shares held in an irrevocable trust of Mr. Altman; and 25,155 owned by the living trust of Mr. Altman’s spouse, 18,723 shares held in the Altman Family Trust, and 143 shares owned by the Ruth Altman Trust over which Mr. Altman has shared voting and investment power. (6) Includes 53,487 shares jointly owned with Mr. Bookmyer’s spouse with whom he shares voting and investment power. (7) Includes 6,526 shares owned by Mr. Burdman’s spouse; and 6,483 shares owned by Purple Burd Limited Partnership, 16,207 shares owned by KB Kidz Limited Partnership, and 1,238 shares owned by the Marsh Burdman Family Trust, over which Mr. Burdman has shared voting and investment power. (8) Includes 1,002 shares for which Mr. Chandhok has the right to acquire ownership within 60 days in connection with the vesting of restricted stock units. (9) Includes 18,575 shares issuable pursuant to currently exercisable stock options. | ||
Delinquent Section 16(A)Reports
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than ten percent of our shares, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and to provide us with a copy of such form. Based on our review of the copies of such forms we received, we believe that our executive officers and directors complied with all Section 16 filing requirements applicable to them with respect to transactions during the fiscal year ended December 31, 2023, except that each of Mark A. Robison, Terri A. Bettinger, Charles D. Niehaus, and Tina Shaver2 filed one late Form 4 reporting one transaction.
2 Ms. Shaver’s Section 16 reports are filed under the name Tina Nutter.
PROPOSAL 3 - Ratification of the Appointment of Crowe LLP as Our Independent Registered Public Accounting Firm for 2024
The Audit Committee has selected Crowe LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2024. The Board is requesting that our shareholders ratify this selection. If our shareholders do not ratify the selection of Crowe, the Audit Committee may reconsider its selection. The Audit Committee expects that a representative from Crowe will be present at the Annual Meeting, will have an opportunity to make a statement if he or she desires, and will be available to respond to appropriate questions from shareholders.
YOUR BOARD RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF CROWE.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Crowe was our independent registered public accounting firm for the fiscal years ended December 31, 2023, 2022 and 2021, and has reported on our consolidated financial statements for each of these years.
Audit Fees
The following table sets forth the aggregate fees that we paid to Crowe for audit and non-audit services in 2023 and 2022. The table lists audit fees, audit related fees, tax fees and all other fees.
| Services Rendered | 2023 ($) | 2022 ($) | |
| Audit Fees | 813,270 | 747,500 | |
| Audit-Related Fees | 45,850 | 48,884 | |
| Tax Fees | 108,275 | 118,135 | |
| All Other Fees | 4,093 | 3,954 | |
| Total Fees Paid | 971,488 | 918,473 | |
Audit-related fees relate to services for employee benefit plan audits and the audits of the captive insurance company. Tax fees consist of fees related to the preparation of tax returns, services relating to the insurance agency disposition, and consulting services relating to the company’s prepared tax model and low income housing tax credits. All other fees consist of an estimated costaccounting research tool subscription.
AUDIT COMMITTEE REPORT
The Audit Committee is comprised of $7,500,five directors, all of whom are considered “independent” under Nasdaq listing rules.
The Audit Committee oversees Premier’s financial reporting process on behalf of the Board. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal control. In fulfilling its oversight responsibilities, the Committee reviewed with management the audited financial statements in the Annual Report on Form 10-K, including a feediscussion of $2,000the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and reimbursementthe clarity of expenses.disclosures in the financial statements. The Committee also reviews the effectiveness of Premier’s system of internal controls, including a review of the process used by management to evaluate the effectiveness of the system of internal control.
The Committee reviewed with Crowe its judgment as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed under their professional standards. The Committee received the written disclosures and the letter from Crowe required by applicable requirements of the Public Company Accounting Oversight Board regarding Crowe’s communications with the Committee concerning independence. In addition, the Committee discussed with Crowe its independence from management and the Company, including the matters required to be discussed by Auditing Standard No. 1301, and considered the compatibility of non-audit services with the auditors’ independence. The Committee also pre-approved all professional services provided to the Company by the independent registered public accounting firm.
The Committee discussed with the Company’s internal auditor and independent registered public accounting firm the overall scope and plans for their respective audits. The Committee meets with the internal auditor and independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting. The Committee held six meetings during 2023.
In reliance on the reviews and discussions referred to above, the Committee recommended to the Board (and the Board has approved) that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2023, for filing with the SEC. The Committee and the Board have also approved the selection of Crowe LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2024.
Samuel S. Strausbaugh, Chair
Louis M. Altman
John L. Bookmyer
Mark A. Robison
Richard J. Schiraldi
February 28, 2024
OTHER MATTERS
HOUSEHOLDING
Our policy is to send a single annual report and proxy statement to multiple shareholders of record that share the same address, unless we receive instructions to the contrary. However, each shareholder of record will continue to receive a separate proxy card. This practice, known as “householding,” is designed to reduce our printing and postage costs. If you wish to receive a separate annual report and proxy statement, you may request it by writing to us at Premier Financial Corp., Shannon M. Kuhl, Corporate Secretary, 275 W. Federal Street, Youngstown, Ohio 44503. If you wish to discontinue householding entirely, you may contact Broadridge Financial Solutions, Inc., at 1-800-542-1061 or in writing at Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717.
If you receive multiple copies of the annual report and proxy statement, you may request householding by contacting Broadridge Financial Solutions as noted above. If your shares are held in street name through a bank, broker or other holder of record, you may request householding by contacting that bank, broker or other holder of record.
SHAREHOLDER PROPOSALS
Any proposal which a shareholder wishes to have included in the proxy solicitation materials to be used in connection with the next annual meeting of shareholders of First DefiancePremier must be received atby the main officeCorporate Secretary of First DefiancePremier no later than November 12, 2018.20, 2024. If such proposal is in compliance with all of the requirements of Rule 14a-8 under the 1934Exchange Act, it will be included in the proxy statement and set forth on the form of proxy issued for the next annual meeting of shareholders. In addition, if
If a shareholder intends to present a proposal at the 20192025 Annual Meeting of Shareholders of First DefiancePremier without including the proposal in the proxy solicitation materials relating to that meeting, and does not notify the Corporate Secretary of Premier by March 1, 2025, or if the proposal is not received by February 23, 2019,Premier meets other requirements of applicable SEC rules, then the proxiesproxy holders designated by the Board of Directors of First Defiance for the 20192025 annual meeting may vote the proxies in their discretion on any suchthe proposal without mentionif it is raised at the 2025 meeting.
If a shareholder intends to solicit his or her own proxies in support of such mattershareholder’s director nominees, the deadlines for providing notice to the Company regarding such solicitation and other procedures set forth in Rule 14a-19 under the proxy solicitation materials or on the proxy card for such meeting.Exchange Act must be followed.
ANNUAL REPORTS AND FINANCIAL STATEMENTS
Our shareholdersshareholders as of the Voting Record Date are being provided with a copy of our Annual Report to Shareholders and Form 10-K for the year ended December 31, 20172023 (“Annual Report”). Included in the Annual Report are the consolidated financial statements of First DefiancePremier as of December 31, 2017 and 2016,2023, and for each of the years in the three-year period ended December 31, 2017,2023, prepared in accordance with generally accepted accounting principles, and the related reports of our independent registered public accounting firm. The Annual Report is not a part of this Proxy Statement.
64
Annex A
FIRST DEFIANCE FINANCIAL CORP.
2018 EQUITY INCENTIVE PLAN
The purpose of the Plan is to promote the Company’s long-term financial success and increase shareholder value by motivating performance through incentive compensation. The Plan also is intended to encourage Participants to acquire ownership interests in the Company, attract and retain talented employees and directors and enable Participants to participate in the Company’s long-term growth and financial success.
ARTICLE I
DEFINITIONS
When used in the Plan, the following capitalized words, terms and phrases shall have the meanings set forth in this Article I. For purposes of the Plan, the form of any word, term or phrase shall include any and all of its other forms.
1.1 “Act” shall mean the Securities Exchange Act of 1934, as amended from time to time, or any successor thereto.
1.2 “Affiliate” shall mean any entity with whom the Company would be considered a single employer under Section 414(b) or (c) of the Code, but modified as permitted under Treasury Regulations promulgated under any Code section relevant to the purpose for which the definition is applied.
1.3 “Award”shall mean any Nonqualified Stock Option, Incentive Stock Option, Stock Appreciation Right, Restricted Stock, Performance Board Award, or Other Stock-Based Award granted pursuant to the Plan.
1.4 “Award Agreement”shall mean any written or electronic agreement between the Company and a Participant that describes the terms and conditions of an Award. If there is a conflict between the terms of the Plan and the terms of an Award Agreement, the terms of the Plan shall govern.
1.5 “Board” shall mean the Board of Directors of the Company.
1.6 “Cause” shall mean, unless otherwise provided in the related Award Agreement or in any employment agreement between the Participant and the Company or any Affiliate or in any other agreement between the Participant and the Company or any Affiliate (but only within the context of the events contemplated by the employment agreement or other agreement, as applicable), a Participant’s: (a) willful and continued failure to substantially perform assigned duties; (b) gross misconduct; (c) breach of any term of any agreement with the Company or any Affiliate, including the Plan and any Award Agreement; (d) conviction of (or plea of no contest or nolo contendere to) (i) a felony or a misdemeanor that originally was charged as a felony but which was subsequently reduced to a misdemeanor through negotiation with the charging entity or (ii) a crime other than a felony, which involves a breach of trust or fiduciary duty owed to the Company or any Affiliate; or (e) violation of the Company’s code of conduct or any other policy of the Company or any Affiliate that applies to the Participant. Notwithstanding the foregoing, Cause will not arise solely because the Participant is absent from active employment during periods of vacation, consistent with the Company’s applicable vacation policy, or other period of absence approved by the Company.
1.7 “Change in Control”shall mean, unless otherwise provided in any employment agreement between the Participant and the Company or any Affiliate or in any other agreement between the Participant and the Company or any Affiliate (but only within the context of events contemplated by the employment agreement or other agreement, as applicable), the occurrence of any of the following:
(a) the members of the Board on the effective date of this Plan (the “Incumbent Directors”) cease for any reason other than death to constitute at least a majority of the members of the Board; provided however, that any individual becoming a director after the effective date of this Plan whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the then Incumbent Directors shall also be treated as an Incumbent Director, but excluding any individual whose initial assumption of office occurs as a result of a proxy contest or any agreement arising out of an actual or threatened proxy contest;
(b) the acquisition by any person or group (within the meaning of Sections 13(d) and 14(d)(2) of the Act), other than the Company, any Subsidiary or any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary of the Company, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act), directly or indirectly, of thirty percent (30%) or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors of the Company; provided, however, that the provisions of this paragraph (b) shall not include the acquisition of voting securities by any entity or person with respect to which that acquirer has filed SEC Schedule 13G (or any successor form or filing) indicating that the voting securities were not acquired and are not held for the purpose of or with the effect of changing or influencing, directly or indirectly, the Company’s management or policies, unless and until that entity or person indicates that its intent has changed by filing SEC Schedule 13D (or any successor form or filing);
(c) the consummation of a merger, consolidation or other business combination of the Company with or into another entity, or the acquisition by the Company of assets or shares or equity interests of another entity, as a result of which the stockholders of the Company immediately prior to such merger, consolidation, other business combination or acquisition, do not, immediately thereafter, beneficially own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the entity resulting from such merger, consolidation or other business combination or the Company;
(d) the sale or other disposition of all or substantially all of the assets of the Company; or
(e) the liquidation or dissolution of the Company.
Notwithstanding the foregoing, with respect to the payment, exercise or settlement of any Award that is subject to Section 409A of the Code (and for which no exception applies), a Change in Control shall be deemed not to have occurred unless the events or circumstances constituting a Change in Control also constitute a “change in control event” within the meaning of Section 409A of the Code and the Treasury Regulations promulgated thereunder.
1.8 “Code”shall mean the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.
1.9 “Committee”shall mean the Compensation Committee of the Board, which will be comprised of at least two (2) directors, each of whom is a “non-employee” director within the meaning of Rule 16b-3 under the Act.
1.10 “Company” shall mean First Defiance Financial Corp., an Ohio corporation, and any successor thereto.
1.11 “Consultant”shall mean any person who renders services to the Company or any of its Affiliates other than an Employee or a Director.
1.12 “Covered Employee” shall mean a “covered employee” within the meaning of Section 162(m) of the Code and the Treasury Regulations promulgated thereunder.
1.13 “Director”shall mean a person who is a member of the Board, excluding any member who is an Employee.
1.14 “Disability” shall mean:
(a) with respect to an Incentive Stock Option, “disability” as defined in Section 22(e)(3) of the Code;
(b) with respect to the payment, exercise or settlement of any Award that is (or becomes) subject to Section 409A of the Code (and for which no exception applies), (i) the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, (ii) the Participant is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering Employees of the Participant’s employer, or (iii) the Participant is determined to be totally disabled by the Social Security Administration or Railroad Retirement Board; and
(c) with respect to a Participant’s right to exercise or receive settlement of any Award or with respect to the payment, exercise or settlement of any Award not described in subsection (a) or (b) of this definition, a Participant’s inability (established by an independent physician selected by the Committee and reasonably acceptable to the Participant or to the Participant’s legal representative) due to illness, accident or otherwise to perform his or her duties, which is expected to be permanent or for an indefinite duration longer than twelve (12) months.
1.15 “Employee”shall mean any person who is a common law employee of the Company or any Affiliate. A person who is classified as other than a common-law employee but who is subsequently reclassified as a common law employee of the Company or any Affiliate for any reason and on any basis shall be treated as a common law employee only from the date that reclassification occurs and shall not retroactively be reclassified as an Employee for any purpose under the Plan.
1.16 “Fair Market Value” shall mean the value of one Share on any relevant date, determined under the following rules:
(a) If the Shares are traded on an exchange, the reported “closing price” on the relevant date if it is a trading day, otherwise on the next trading day;
(b) If the Shares are traded over-the-counter with no reported closing price, the mean between the lowest bid and the highest asked prices on that quotation system on the relevant date if it is a trading day, otherwise on the next trading day; or
(c) If neither (a) nor (b) applies, (i) with respect to Options, Stock Appreciation Rights and any Award that is subject to Section 409A of the Code, the value as determined by the Committee through the reasonable application of a reasonable valuation method, taking into account all information material to the value of the Company, within the meaning of Section 409A of the Code and the Treasury Regulations promulgated thereunder, and (ii) with respect to all other Awards, the fair market value as determined by the Committee in good faith.
1.17 “Incentive Stock Option”shall mean an Option that is intended to meet the requirements of Section 422 of the Code.
1.18 “Nonqualified Stock Option”shall mean an Option that is not intended to be an Incentive Stock Option.
1.19 “Option”shall mean an option to purchase Shares which is granted pursuant to Article V of the Plan. An Option may be either an Incentive Stock Option or a Nonqualified Stock Option.
1.20 “Other Stock-Based Award” shall mean an Award granted pursuant to Article VIII of the Plan.
1.21 “Participant”shall mean an Employee, Director or Consultant who is granted an Award under the Plan.
1.22 “Performance-Based Award” shall mean an Award described in Article IX of the Plan.
1.23 “Plan”shall mean the First Defiance Financial Corp. 2018 Equity Incentive Plan, as set forth herein and as may be amended from time to time.
1.24 “Prior Plan” shall mean the First Defiance Financial Corp. 2010 Equity Incentive Plan, as amended.
1.25 “Restricted Stock”shall mean an Award granted pursuant to Article VII of the Plan through which a Participant is issued Shares which are subject to specified restrictions on vesting and transferability.
1.26 “Retirement” shall mean, unless otherwise specified in an Award Agreement, in the case of an Employee, the retirement from the employ of the Company under one or more of the retirement plans of the Company, or as otherwise specified by the Committee and, in the case of Director, shall mean the retirement from the Board at any time after the Director attains age fifty-five (55) and has served at least five (5) years as a Director.
1.27 “Shares”shall mean the common shares, par value $0.01 per share, of the Company or any security of the Company issued in satisfaction, exchange or in place of these shares.
1.28 “Stock Appreciation Right”shall mean an Award granted pursuant to Article VI of the Plan through which a Participant is given the right to receive the difference between the Fair Market Value of a Share on the date of grant and the Fair Market Value of a Share on the date of exercise of the Award.
1.29 “Subsidiary”shall mean: (a) with respect to an Incentive Stock Option, a “subsidiary corporation” as defined under Section 424(f) of the Code; and (b) for all other purposes under the Plan, any corporation or other entity in which the Company owns, directly or indirectly, a proprietary interest of more than fifty (50%) by reason of stock ownership or otherwise.
ARTICLE II
SHARES SUBJECT TO THE PLAN
2.1 Number of Shares Available for Awards. Subject to this Article II, the number of Shares with respect to which Awards may be granted under the Plan shall be 450,000, all of which may be granted with respect to Incentive Stock Options. The Shares may consist, in whole or in part, of treasury Shares, authorized but unissued Shares not reserved for any other purpose or Shares purchased by the Company or an independent agent in either a private transaction or in the open market. Subject to this Article II, the number of Shares available for issuance under the Plan shall be reduced by one (1) Share for each Share subject to a grant of an Award, and any Shares underlying an Award that become available for future grant under the Plan pursuant to Section 2.2 shall be added back to the Plan. Without limiting the foregoing, with respect to any Stock Appreciation Right that is settled in Shares, the full number of Shares subject to the Award shall count against the number of Shares available for Awards under the Plan regardless of the number of Shares used to settle the Stock Appreciation Right upon exercise.
2.2 Share Usage. In addition to the number of Shares provided for in Section 2.1, the following Shares shall be available for Awards under the Plan: (a) Shares covered by an Award or a Prior Plan Award that expires or is forfeited, canceled, surrendered or otherwise terminated without the issuance of such Shares; (b) Shares covered by an Award or a Prior Plan Award that, by its terms, may be settled only in cash; (c) Shares granted through the assumption of, or in substitution for, outstanding awards granted by a company to individuals who become Employees, Directors or Consultants as the result of a merger, consolidation, acquisition or other corporate transaction involving such company and the Company or any of its Affiliates; and (d) any Shares from awards exercised for or settled in vested and nonforfeitable Shares that are later returned to the Company pursuant to any compensation recoupment policy, provision or agreement.
2.3 Adjustments. In the event of any Share dividend, Share split, recapitalization (including payment of an extraordinary dividend), merger, reorganization, consolidation, combination, spin-off, distribution of assets to stockholders, exchange of Shares or any other change affecting the Shares, the Committee shall make such substitutions and adjustments, if any, as it deems equitable and appropriate to: (a)the aggregate number of Shares that may be issued under the Plan; (b)any Share-based limits imposed under the Plan; and (c)the exercise price, number of Shares and other terms or limitations applicable to outstanding Awards. Notwithstanding the foregoing, an adjustment pursuant to this Section 2.3 shall be made only to the extent such adjustment complies, to the extent applicable, with Section 409A of the Code.
ARTICLE III
ADMINISTRATION
3.1 In General. The Plan shall be administered by the Committee. The Committee shall have full power and authority to: (a) interpret the Plan and any Award Agreement; (b) establish, amend and rescind any rules and regulations relating to the Plan; (c) select Participants; (d) establish the terms and conditions of any Award consistent with the terms and conditions of the Plan; and (e) make any other determinations that it deems necessary or desirable for the administration of the Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award Agreement in the manner and to the extent the Committee deems necessary or desirable. Any decision of the Committee in the interpretation and administration of the Plan shall be made in the Committee’s sole and absolute discretion and shall be final, conclusive and binding on all persons.
3.2 Delegation of Duties. In its sole discretion, the Committee may delegate any ministerial duties associated with the Plan to any person (including Employees) it deems appropriate; provided, however, that the Committee may not delegate (a) any duties that it is required to discharge to comply with Section 162(m) of the Code or any other applicable law; (b) its authority to grant Awards to any Participant who is subject to Section 16 of the Act; and (c) its authority under the Company’s equity award granting policy that may be in effect from time to time.
ARTICLE IV
ELIGIBILITY
Any Employee, Director or Consultant selected by the Committee shall be eligible to be a Participant in the Plan; provided, however, that Incentive Stock Options shall only be granted to Employees who are employed by the Company or any of its Subsidiaries.
ARTICLE V
OPTIONS
5.1 Grant of Options. Subject to the terms and conditions of the Plan, Options may be granted to Participants in such number, and upon such terms and conditions, as shall be determined by the Committee in its sole discretion.
5.2 Award Agreement. Each Option shall be evidenced by an Award Agreement that shall specify the exercise price, the term of the Option, the number of Shares covered by the Option, the conditions upon which the Option shall become vested and exercisable and such other terms and conditions as the Committee shall determine and which are not inconsistent with the terms and conditions of the Plan. The Award Agreement also shall specify whether the Option is intended to be an Incentive Stock Option or a Nonqualified Stock Option.
5.3 Exercise Price. The exercise price per Share of an Option shall be determined by the Committee at the time the Option is granted and shall be specified in the related Award Agreement; provided, however, that in no event shall the exercise price of any Option be less than one hundred percent (100%) of the Fair Market Value of a Share on the date of grant.
5.4 Term. The term of an Option shall be determined by the Committee and set forth in the related Award Agreement; provided, however, that in no event shall the term of any Option exceed ten (10) years from its date of grant.
5.5 Exercisability. Options shall become exercisable at such times and upon such terms and conditions as shall be determined by the Committee and set forth in the related Award Agreement. Such terms and conditions may include, without limitation, the satisfaction of (a) performance goals; and (b) time-based vesting requirements.
5.6 Exercise of Options. Except as otherwise provided in the Plan or in a related Award Agreement, an Option may be exercised for all or any portion of the Shares for which it is then exercisable. An Option shall be exercised by the delivery of a notice of exercise to the Company or its designee in a form specified by the Committee which sets forth the number of Shares with respect to which the Option is to be exercised and full payment of the exercise price for such Shares. The exercise price of an Option may be paid: (a) in cash or its equivalent; (b) by tendering (either by actual delivery or attestation) previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the aggregate exercise price; provided that such Shares had been held for at least six (6) months or such other period required to obtain favorable accounting treatment; (c) by a cashless exercise (including by withholding Shares deliverable upon exercise and through a broker-assisted arrangement to the extent permitted by applicable law); (d) by a combination of the methods described in clauses (a), (b) and/or (c); or (e) though any other method approved by the Committee in its sole discretion. As soon as practicable after receipt of the notification of exercise and full payment of the exercise price, the Company shall cause the appropriate number of Shares to be issued to the Participant. An Option may be settled in full Shares, cash or a combination thereof, as specified by the Committee in a related Award Agreement.
5.7 Special Rules Applicable to Incentive Stock Options. Notwithstanding any other provision in the Plan to the contrary:
(a) The terms and conditions of Incentive Stock Options shall be subject to and comply with the requirements of Section 422 of the Code.
(b) The aggregate Fair Market Value of the Shares (determined as of the date of grant) with respect to which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company and its Subsidiaries) may not be greater than $100,000 (or such other amount specified in Section 422 of the Code), as calculated under Section 422 of the Code.
(c) No Incentive Stock Option shall be granted to any Participant who, at the time the Incentive Stock Option is granted, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Subsidiary, unless (i) the exercise price of such Incentive Stock Option is at least one hundred and ten percent (110%) of the Fair Market Value of a Share on the date the Incentive Stock Option is granted and (ii) the date on which such Incentive Stock Option will expire is not later than five (5) years from the date the Incentive Stock Option is granted.
ARTICLE VI
STOCK APPRECIATION RIGHTS
6.1 Grant of Stock Appreciation Rights. Subject to the terms and conditions of the Plan, Stock Appreciation Rights may be granted to Participants in such number, and upon such terms and conditions, as shall be determined by the Committee in its sole discretion.
6.2 Award Agreement. Each Stock Appreciation Right shall be evidenced by an Award Agreement that shall specify the exercise price, the term of the Stock Appreciation Right, the number of Shares covered by the Stock Appreciation Right, the conditions upon which the Stock Appreciation Right shall become vested and exercisable and such other terms and conditions as the Committee shall determine and which are not inconsistent with the terms and conditions of the Plan.
6.3 Exercise Price. The exercise price per Share of a Stock Appreciation Right shall be determined by the Committee at the time the Stock Appreciation Right is granted and shall be specified in the related Award Agreement; provided, however, that in no event shall the exercise price of any Stock Appreciation Right be less than one hundred percent (100%) of the Fair Market Value of a Share on the date of grant.
6.4 Term. The term of a Stock Appreciation Right shall be determined by the Committee and set forth in the related Award Agreement; provided however, that in no event shall the term of any Stock Appreciation Right exceed ten (10) years from its date of grant.
6.5 Exercisability of Stock Appreciation Rights. A Stock Appreciation Right shall become exercisable at such times and upon such terms and conditions as may be determined by the Committee and set forth in the related Award Agreement. Such terms and conditions may include, without limitation, the satisfaction of (a) performance goals; and (b) time-based vesting requirements.
6.6 Exercise of Stock Appreciation Rights. Except as otherwise provided in the Plan or in a related Award Agreement, a Stock Appreciation Right may be exercised for all or any portion of the Shares for which it is then exercisable. A Stock Appreciation Right shall be exercised by the delivery of a notice of exercise to the Company or its designee in a form specified by the Committee which sets forth the number of Shares with respect to which the Stock Appreciation Right is to be exercised. Upon exercise, a Stock Appreciation Right shall entitle a Participant to an amount equal to (a) the excess of (i) the Fair Market Value of a Share on the exercise date over (ii) the exercise price per Share, multiplied by (b) the number of Shares with respect to which the Stock Appreciation Right is exercised. A Stock Appreciation Right may be settled in full Shares, cash or a combination thereof, as specified by the Committee in the related Award Agreement.
ARTICLE VII
RESTRICTED STOCK
7.1 Grant of Restricted Stock. Subject to the terms and conditions of the Plan, Shares of Restricted Stock may be granted to Participants in such number, and upon such terms and conditions, as shall be determined by the Committee in its sole discretion.
7.2 Award Agreement. Each Restricted Stock Award shall be evidenced by an Award Agreement that shall specify the number of Shares of Restricted Stock, the restricted period(s) applicable to the Shares of Restricted Stock, the conditions upon which the restrictions on the Shares of Restricted Stock will lapse and such other terms and conditions as the Committee shall determine and which are not inconsistent with the terms and conditions of the Plan.
7.3 Terms, Conditions and Restrictions.
(a) The Committee shall impose such other terms, conditions and/or restrictions on any Shares of Restricted Stock as it may deem advisable, including, without limitation, a requirement that the Participant pay a purchase price for each Share of Restricted Stock, restrictions based on the achievement of specific performance goals, time-based restrictions or holding requirements or sale restrictions placed on the Shares by the Company upon vesting of such Restricted Stock.
(b) To the extent deemed appropriate by the Committee, the Company may retain the certificates representing Shares of Restricted Stock in the Company’s possession until such time as all terms, conditions and/or restrictions applicable to such Shares have been satisfied or lapse.
(c) Unless otherwise provided in the related Award Agreement or required by applicable law, the restrictions imposed on Shares of Restricted Stock shall lapse upon the expiration or termination of the applicable restricted period and the satisfaction of any other applicable terms and conditions.
7.4 Rights Associated with Restricted Stock during Restricted Period. During any restricted period applicable to Shares of Restricted Stock:
(a) Such Shares of Restricted Stock may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated.
(b) Unless otherwise provided in the related Award Agreement, (i) the Participant shall be entitled to exercise full voting rights associated with such Shares of Restricted Stock and (ii) the Participant shall be entitled to all dividends and other distributions paid with respect to such Shares of Restricted Stock during the restricted period; provided, however, that receipt of any such dividends or other distributions will be subject to the same terms and conditions as the Shares of Restricted Stock with respect to which they are paid.
ARTICLE VIII
OTHER STOCK-BASED AWARDS
8.1 Grant of Other Stock-Based Awards. Subject to the terms and conditions of the Plan, Other Stock-Based Awards may be granted to Participants in such number, and upon such terms and conditions, as shall be determined by the Committee in its sole discretion. Other Stock-Based Awards are Awards that are valued in whole or in part by reference to, or otherwise based on the Fair Market Value of, the Shares, and shall be in such form as the Committee shall determine, including without limitation, (a) unrestricted Shares or (b) time-based or performance-based restricted stock units that are settled in Shares and/or cash.
8.2 Award Agreement. Each Other Stock-Based Award shall be evidenced by an Award Agreement that shall specify the terms and conditions upon which the Other Stock-Based Award shall become vested, if applicable, the time and method of settlement, the form of settlement and such other terms and conditions as the Committee shall determine and which are not inconsistent with the terms and conditions of the Plan.
8.3 Form of Settlement. An Other Stock-Based Award may be settled in full Shares, cash or a combination thereof, as specified by the Committee in the related Award Agreement.
8.4 Dividend Equivalents. Awards of Other Stock-Based Awards may provide the Participant with dividend equivalents, as determined by the Committee in its sole discretion and set forth in the related Award Agreement.
ARTICLE IX
PERFORMANCE-BASED AWARDS
Subject to the terms and conditions of the Plan, Performance-Based Awards may be granted to Participants in such amounts and upon such other terms and conditions as shall be determined by the Committee in its sole discretion. Each Performance-Based Award shall be evidenced by an Award Agreement that shall specify the payment amount or payment range, the time and method of settlement and other terms and conditions, as applicable, of such Award including, that the vesting and/or payment of the Award is subject to the attainment of one (1) or more performance goals during a performance period established by the Committee.
ARTICLE X
TERMINATION OF EMPLOYMENT OR SERVICE
With respect to each Award granted under the Plan, the Committee shall, subject to the terms and conditions of the Plan, determine the extent to which the Award shall vest and the extent to which the Participant shall have the right to exercise and/or receive settlement of the Award on or following the Participant’s termination of employment or services with the Company and/or any of its Affiliates. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the related Award Agreement, need not be uniform among all Awards granted under the Plan and may reflect distinctions based on the reasons for termination.
ARTICLE XI
CHANGE IN CONTROL
11.1 Effect of Change in Control.Except as otherwise provided in the related Award Agreement, in the event of a Change in Control, the Committee, in its sole discretion, may take such actions, if any, as it deems necessary or desirable with respect to any Award that is outstanding as of the date of the consummation of the Change in Control. Such actions may include, without limitation: (a) the acceleration of the vesting, settlement and/or exercisability of an Award; (b) the payment of a cash amount in exchange for the cancellation of an Award; and/or (c) the issuance of substitute Awards that substantially preserve the value, rights and benefits of any affected Awards. Any action relating to an Award that is subject to Section 409A of the Code shall be consistent with the requirements thereof.
11.2 Golden Parachute Limitations.Except as otherwise provided in any other written agreement between the Company or any Affiliate and a Participant, including any Award Agreement, if the sum of the amounts payable under the Plan and those provided under all other plans, programs or agreements between the Participant and the Company or any Affiliate constitutes a “parachute payment” as defined in Section 280G of the Code, the Company will reduce any payments to the minimum extent necessary to avoid the imposition of an excise tax under Section 4999 of the Code or a loss of deduction under Section 280G of the Code. Any reduction pursuant to this Section 11.2 shall be made in compliance with Section 409A of the Code.
ARTICLE XII
AMENDMENT OR TERMINATION OF THE PLAN
12.1 In General. The Board or the Committee may amend or terminate the Plan at any time; provided, however, that no amendment or termination shall be made without the approval of the Company’s stockholders to the extent that (a) the amendment materially increases the benefits accruing to Participants under the Plan, (b) the amendment materially increases the aggregate number of Shares authorized for grant under the Plan (excluding an increase in the number of Shares that may be issued under the Plan as a result of Section 2.3, (c) the amendment materially modifies the requirements as to eligibility for participation in the Plan, or (d) such approval is required by any law, regulation or stock exchange rule.
12.2 Repricing. Except for adjustments made pursuant to Section 2.3 of the Plan, in no event may the Board or the Committee amend the terms of an outstanding Award to reduce the exercise price of an outstanding Option or Stock Appreciation Right or cancel an outstanding Option or Stock Appreciation Right in exchange for cash, other Awards or Options or Stock Appreciation Rights with an exercise price that is less than the exercise price of the original Option or Stock Appreciation Right without shareholder approval.
ARTICLE XIII
TRANSFERABILITY
13.1 Except as described in Section 13.2 or as provided in a related Award Agreement, an Award may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, except by will or the laws of descent and distribution and, during a Participant’s lifetime, may be exercised only by the Participant or the Participant’s guardian or legal representative. Notwithstanding any provision contained in this Article XIII, no Award may be transferred by a Participant for value or consideration.
13.2 Unless otherwise specifically designated by the Participant in writing, a Participant’s beneficiary under the Plan shall be the Participant’s spouse or, if no spouse survives the Participant, the Participant’s estate.
ARTICLE XIV
MISCELLANEOUS
14.1 No Right to Continue Services or to Awards. The granting of an Award under the Plan shall impose no obligation on the Company or any Affiliate to continue the employment or services of a Participant or interfere with or limit the right of the Company or any Affiliate to terminate the services of any Employee, Director or Consultant at any time. In addition, no Employee, Director or Consultant shall have any right to be granted any Award, and there is no obligation for uniformity of treatment of Participants. The terms and conditions of Awards and the Committee’s interpretations and determinations with respect thereto need not be the same with respect to each Participant.
14.2 Tax Withholding.
(a) The Company or an Affiliate, as applicable, shall have the power and the right to deduct, withhold or collect any amount required by law or regulation to be withheld with respect to any taxable event arising with respect to an Award granted under the Plan. This amount may, as determined by the Committee in its sole discretion, be (i) withheld from other amounts due to the Participant, (ii) withheld from the value of any Award being settled or any Shares being transferred in connection with the exercise or settlement of an Award or (iii) withheld from the vested portion of any Award (including the Shares transferable thereunder), whether or not being exercised or settled at the time the taxable event arises, or (iv) collected directly from the Participant.
(b) Subject to the approval of the Committee, a Participant may elect to satisfy the withholding requirement, in whole or in part, by having the Company or an Affiliate, as applicable, withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax that could be imposed on the transaction, or a higher level of withholding elected by the Participant; provided that such Shares would otherwise be distributable to the Participant at the time of the withholding and if such Shares are not otherwise distributable at the time of the withholding, provided that the Participant has a vested right to distribution of such Shares at such time. All such elections shall be irrevocable and made in writing and shall be subject to any terms and conditions that the Committee, in its sole discretion, deems appropriate.
14.3 Requirements of Law. The grant of Awards and the issuance of Shares shall be subject to all applicable laws, rules and regulations (including applicable federal and state securities laws) and to all required approvals of any governmental agencies or national securities exchange, market or other quotation system. Without limiting the foregoing, the Company shall have no obligation to issue Shares under the Plan prior to (a) receipt of any approvals from any governmental agencies or national securities exchange, market or quotation system that the Committee deems necessary and (b) completion of registration or other qualification of the Shares under any applicable federal or state law or ruling of any governmental agency that the Committee deems necessary.
14.4 Legends. Certificates for Shares delivered under the Plan may be subject to such stock transfer orders and other restrictions that the Committee deems advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange or other recognized market or quotation system upon which the Shares are then listed or traded, or any other applicable federal or state securities law. The Committee may cause a legend or legends to be placed on any certificates issued under the Plan to make appropriate reference to restrictions within the scope of this Section 14.4.
14.5 Uncertificated Shares. To the extent that the Plan provides for the issuance of certificates to reflect the transfer of Shares, the transfer of Shares may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange.
14.6 Governing Law. The Plan and all Award Agreements shall be governed by and construed in accordance with the laws of (other than laws governing conflicts of laws) the State of Ohio, except to the extent that the laws of the state in which the Company is incorporated are mandatorily applicable.
14.7 No Impact on Benefits. Awards are not compensation for purposes of calculating a Participant’s rights under any employee benefit plan that does not specifically require the inclusion of Awards in calculating benefits.
14.8 Rights as a Shareholder. Except as otherwise provided in the Plan or in a related Award Agreement, a Participant shall have none of the rights of a shareholder with respect to Shares covered by an Award unless and until the Participant becomes the record holder of such Shares.
14.9 Successors and Assigns. The Plan shall be binding on all successors and assigns of the Company and each Participant, including without limitation, the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participant’s creditors.
14.10 Section 409A of the Code.
(a) Awards granted pursuant to the Plan that are subject to Section 409A of the Code, or that are subject to Section 409A but for which an exception from Section 409A of the Code applies, are intended to comply with or be exempt from Section 409A of the Code and the Treasury Regulations promulgated thereunder, and the Plan shall be interpreted, administered and operated accordingly.
(b) If a Participant is determined to be a “specified employee” (within the meaning of Section 409A of the Code and as determined under the Company’s policy for determining specified employees), the Participant shall not be entitled to payment or to distribution of any portion of an Award that is subject to Section 409A of the Code (and for which no exception applies) and is payable or distributable on account of the Participant’s “separation from service” (within the meaning of Section 409A of the Code) until the expiration of six (6) months from the date of such separation from service (or, if earlier, the Participant’s death). Such Award, or portion thereof, shall be paid or distributed on the first (1st) business day of the seventh (7th) month following such separation from service.
(c) Nothing in the Plan shall be construed as an entitlement to or guarantee of any particular tax treatment to a Participant, and none of the Company, its Affiliates, the Board or the Committee shall have any liability with respect to any failure to comply with the requirements of Section 409A of the Code.
14.11 Savings Clause. In the event that any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
ARTICLE XV
EFFECTIVE DATE AND TERM OF THE PLAN
The effective date of the Plan is April 24, 2018. No Incentive Stock Options shall be granted under the Plan after February 27, 2028 and no other Awards shall be granted under the Plan after the tenth anniversary of the effective date of the Plan or, if earlier, the date the Plan is terminated. Notwithstanding the foregoing, the termination of the Plan shall not preclude the Company from complying with the terms of Awards outstanding on the date the Plan terminates.
Annex B
ARTICLES OF INCORPORATION
ARTICLE XVI
Amendment of Code of Regulations
The Code of Regulation may be made, repealed, altered, amended or rescinded by the stockholders of the Corporation by the vote of the holders of not less thantwo thirdsa majority of the voting power of the Corporation entitled to vote at a meeting of stockholders called for that purpose.
CODE OF REGULATIONS
ARTICLE IX
Amendments
In accordance with the Corporation’s Articles of Incorporation, this Code of Regulations may be repealed, altered, amended or rescinded by the stockholders of the Corporation by vote of not less thantwo thirdsa majority of the outstanding voting power of the Corporation entitled to vote at a meeting of the stockholders called for that purpose.
Annex C
ARTICLES OF INCORPORATION
ARTICLE XVII
Amendment of Article of Incorporation
The Corporation reserves the right to repeal, alter, amend or rescind any provision contained in these Articles in the manner now or hereafter prescribed by law upon the affirmative vote of at least a majority of the voting power of the Corporation, and all rights conferred on stockholders herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions of Articles IV, VII, X, XI, XII, XIII, XIV, XV, XVI and this Article XVII of these Articles may not be repealed, replaced, altered, amended or rescinded in any respect unless the same is approved by the affirmative vote of the holders of not less than75 percenta majority of the voting power of the Corporation entitled to vote at a meeting of stockholders called for that purpose (provided that notice of such proposed adoption, repeal, replacement, alteration, amendment or rescission is included in the notice of such meeting).
Annex D
ARTICLES OF INCORPORATION
ARTICLE XV
Business Combinations
The shareholder vote required to approve a Business Combination (as hereinafter defined) shall be as set forth in this Article XV, in addition to any other requirements under applicable law.
A. (1) Except as otherwise expressly provided in this Article XV, the affirmative vote of the holders of (i) at least80%a majority of the outstanding shares entitled to vote thereon (and, if any class or series of shares is entitled to vote thereon separately, the affirmative vote of the holders of at least two-thirds of the outstanding shares of each such class or series) and (ii) a majority of the outstanding shares entitled to vote thereon not including shares deemed beneficially owned by a Related Person (as hereinafter defined) shall be required in order to authorize any of the following:
(2) Such affirmative vote shall be required notwithstanding any other provision of these Articles, any provision of law, or any agreement with any national securities exchange or automated quotation system which might otherwise permit a lesser vote or no vote.
(3) The term “Business Combination” as used in this Article XV shall mean any transaction which is referred to in any one or more of Paragraphs (l)(a) through (1)(h) of this Article XV.
B. The provisions of Paragraph (A) of this Article shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by any other provisions of these Articles, any provisions of law or any agreement with any federal regulatory agency, national securities exchange or automated quotation system, if the Business Combination shall have been approved by at least two-thirds of the Continuing Directors (as hereinafter defined); provided, however, that such approval shall be effective only if obtained at a meeting at which a Continuing Director Quorum (as hereinafter defined) is present.
C. For the purpose of this Article XV the following definitions apply:
(1) The term “Related Person” shall mean (a) any individual, corporation, partnership or other person or entity which together with its “affiliates” (as that term is defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934) “beneficially owns” (as that term is defined in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934) in the aggregate 10% or more of the outstanding shares of the common stock of the Corporation; and (b) any “affiliate” (as that term is defined in Rule 12b-2 under the Securities Exchange Act of 1934) of any such individual, corporation, partnership or other person or entity. Without limitation, any shares of the common stock of the Corporation which any Related Person has the right to acquire pursuant to any agreement, upon exercise of conversion rights, warrants or options or otherwise shall be deemed “beneficially owned” by such Related Person.
(2) The term “Substantial Part” shall mean more than 25 percent of the total assets of the Corporation, as of the end of its most recent fiscal year ending prior to the time the determination is made.
(3) The term “Continuing Director” shall mean any member of the Board of Directors of the Corporation who is unaffiliated with a Related Person and was a member of the Board of Directors prior to the time that the Related Person became a Related Person, and any successor of a Continuing Director who is recommended to succeed a Continuing Directors by a majority of Continuing Directors than on the Board of Directors.
(4) The term “Continuing Director Quorum” shall mean at least two-thirds of the Continuing Directors capable of exercising the powers conferred on them.
D. In addition to Paragraphs (A) through (C) of this Article XV, the provisions of the Ohio General Corporation Law regarding (i) transactions with interested shareholders and (ii) proposed control share acquisitions, as in effect on the date hereof (Chapter 1704 and Section 1701.831 of the Revised Code of Ohio, respectively), shall apply to the Corporation.
FIRST DEFIANCE FINANCIAL CORP. ATTN: DONALD P. HILEMAN 601 CLINTON STREET P.O. BOX 248 DEFIANCE, OH 43512 VOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on April 23, 2018. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. During The Meeting - Go to www.virtualshareholdermeeting.com/fdef2018 You may attend the Meeting via the Internet and vote during the Meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on April 23, 2018. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E37138-P02199 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. FIRST DEFIANCE FINANCIAL CORP. The Board of Directors recommends you vote FOR the following nominees: 1. Election of Directors Nominees: 01) Robert E. Beach 02) Douglas A. Burgei, D.V.M. 03) Donald P. Hileman 04) Samuel S. Strausbaugh For All Withhold All For All Except To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. The Board of Directors recommends you vote FOR the following proposals: 2. To consider and approve a non-binding advisory vote on First Defiance's executive compensation. 3. To consider and approve the First Defiance Financial Corp. 2018 Equity Incentive Plan. 4. To consider and vote on an amendment to the Company’s Articles of Incorporation to remove the supermajority voting standard for amendments to our Code of Regulations (implementation of this Proposal 4 is conditioned upon the approval of Proposal 5). 5. To consider and vote on an amendment to the Company’s Code of Regulations to remove the supermajority voting standard for amendments to our Code of Regulations (implementation of this Proposal 5 is conditioned upon the approval of Proposal 4). For Against Abstain 6. To consider and vote on an amendment to the Company’s Articles of Incorporation to remove the supermajority voting standard for amendments to our Articles of Incorporation. 7. To consider and vote on an amendment to the Company’s Articles of Incorporation to remove the supermajority voting standard for approval of certain business combinations. 8. To consider and vote on a proposal to ratify the appointment of Crowe Horwath LLP as the independent registered public accounting firm for First Defiance for the year 2018. For Against Abstain For address changes and/or comments, please check this box and write them on the back where indicated. NOTE: The undersigned shareholder(s) authorize(s) the individuals designated in this proxy to vote, in their discretion, to the extent permitted by applicable law, upon such other matters as may properly come before the meeting or any adjournment thereof. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: First Defiance Financial Corp.'s Notice, Proxy Statement and 2017 Annual Report to Shareholders are available at www.proxyvote.com. Address Changes/Comments: _______________________________________________________________________________ ________________________________________________________________________________________________________ (If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.) E37139-P02199 THIS PROXY CARD IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FIRST DEFIANCE FINANCIAL CORP. ANNUAL MEETING OF SHAREHOLDERS April 24, 2018 at 1:00 p.m., Eastern Time The undersigned hereby appoints the Board of Directors of First Defiance Financial Corp. (the "Company") as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and vote, as designated on the reverse side, all the shares of Common Stock of the Company held of record by the undersigned on February 23, 2018 at the Annual Meeting of Shareholders to be held virtually at www.virtualshareholdermeeting.com/fdef2018, on Tuesday, April 24, 2018, at 1:00 p.m., Eastern Time, and any adjournment thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations. Continued and to be signed on reverse side
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